ECON 1115 Lecture Notes - Lecture 3: Marginal Utility, Social Cost, Market Failure
7 Feb 2017
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Chapters 1, 3 and 4 test on monday. Positive externalities: society benefits without benefit or compensation. Relation between value and price positively related. Marginal private benefit obeys law of diminishing marginal utility. For socially optimal output we must have msb = msc. Government can move from q1 to q2 by passing law to make going to school mandatory. Marginal social benefit affects us even if we don"t directly benefit from it, example: america benefits from everyone being educated with lower crime rates and better employments rates etc. Quantity too low for marginal efficiency and too low for social efficiency. If the paper company included all costs (including treating their waste before dumping it back in the river) it would shift the marginal social cost to the left. Social welfare is maximised where the new msc curve intersects with the. The market system allows housing down river from the paper mill (or landfills/railroads) to be sold at a cheaper price.
