ECON 2010 Lecture Notes - Lecture 8: Public Good, Club Good, Ronald Coase
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ECON 2010 Full Course Notes
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Document Summary
Sometimes the market system fails to produce efficient outcomes because of side effects called externalities. Externality: an uncompensated benefit or cost from consumption or production that spills over onto those who are not consuming or producing the good ( uncompensated spillover ). A positive externality occurs when benefits spill over to an outside party who is not involved in producing or consuming the good (e. g. education, ladybugs). A negative externality occurs when costs spill over to an outside party who is not involved in producing or consuming the good (e. g. air or water pollution, congestion, noise/heat pollution environmental problems generally). The classic example of a negative externality is the air used by an air polluting factory. The polluted air spills over to outside parties. Such damages are real costs, but, unlike the other resources the firm uses in production, no one owns the air, so the firm does not have to pay for its use (the.