ECON100 Lecture Notes - Lecture 5: Public Good, Private Good, Economic Surplus

• School: University of Delaware
• Department: Economics
• Course: ECON100
• Professor: Asarta Carlos

Document Summary

Learning objective: describe the relationship between private and social benefits and costs, in this section we will see how external costs and benefits may cause the market outcome to be different from the efficient, socially optimal outcome. Notes: when supply and demand include all the costs and benefits of producing and consuming a good or service, markets are both productively and allocatively efficient. All costs and benefits are internalized by the market, there are no external costs or benefits: when externalities exist, the outcome we may observe may not be the efficient outcome. Markets produce too little or too much output relative to the socially optimal level of output. Outside intervention may be able to improve the market outcome, increasing efficiency and economic surplus: the potential to improve on the market outcome is one of the justification for government intervention in markets characterized by externalities. Learning objective: discuss positive externalities in demand and supply framework.