ECON 13 Lecture Notes - Lecture 10: Social Cost, Market Failure, Productive Efficiency
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ECON 13 Full Course Notes
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Obama unveiled historic rules to reduce coal pollution by 30% China to limit carbon emissions for 1st time. This trade off arises for all countries whether high or low income and whether their economies are market-orientated or command-orientated. Markets are usually a good way to organize economic activity. If there is no market failure, competitive market outcome is efficient, maximize total surplus. 1 type of market failure: externality - the uncompensated impact of one person"s actions on the well-being of a bystander. Self-interested buyers and sellers neglect the external costs of benefits of their actions, so market outcome not always efficient. Governments can sometimes improve market outcomes: in presence of externalities, public policy can improve efficiency. Externality occurs when an exchange between a buyer and seller has an impact on a third party who is not part of the exchange. An externality, which is sometimes called a spillover, can have a negative or a positive impact on the third party.
