ECON 2010 Lecture Notes - Lecture 18: Social Cost, Salad Bar, Equilibrium Point

• School: CU-Boulder
• Department: Economics
• Course: ECON 2010
• Professor: Christian Hennigan

Document Summary

Markets are usually a good way to organize economy activity". Government action can sometimes improve upon market outcomes": why markets sometimes fail to allocate resources efficiently, how government policies can potentially improve the market"s allocation, what kinds of policies are likely to work best. Note that maximizing consumer + producer surplus is not the same as maximizing. Total surplus in the presence of externalities (whether positive or negative). Private cost: costs directly incurred by sellers they are willing to pay) impact on bystanders. Ex: there"s costs to pollution, but there"s benefits for using gasoline. Internalizing the externality: altering incentives so that people take into account the external effects of their actions. In our example, the /gallon tax on sellers makes sellers" costs = social costs. If market participants pay social costs, the market equilibrium = social optimum: this is what we want ! Powerpoint slides from lecture notes as posted by the professor.