ECON 20A Lecture Notes - Lecture 5: Externality, Coase Theorem
Document Summary
Dwl arises because mc>mb for all units past qo. Assume: world supply/demand are perfectly elastic at the world price. If domestic economy wants to export goods, the world will buy goods. If domestic economy wants to import goods, the world will sell goods. Private marginal benefit (pmb): mb of consumers in the market. Private marginal cost (pmc): mc of producers in the market. When smb=pmb and smc=pmc, the competitive market maximizes total surplus for society. When smb pmb or smc pmc, the competitive market does not maximize surplus for society. Externality: the uncompensated effect of one person"s actions on the well being of another. Positive externalities: uncompensated effect is positive vaccinations education. Negative externalities: uncompensated effect is negative pollution in production smoking in doorways. Po
