ECON 102 Lecture Notes - Lecture 19: Externality

• School: University of Illinois
• Department: Economics
• Course: ECON 102
• Professor: Isaac Dilanni

Document Summary

Econ 102 - lecture 19 - transaction costs (cont. ) Externality- when an economic activity confers a benefit or imposes a cost on an unrelated 3rd party. Positive externality- a benefit gained by an unrelated 3rd party. Private marginal benefit- the benefits that the supplier receives when it produces one more unit of a good. Social marginal benefit- the benefit that everyone in society receives when the supplier produces one more unit of a good. When there are positive externalities, the quantity produced will be less than optimal. Example: selling radio waves is useless because people can just say they didn"t listen. Beneficial when radio stations sell air time to companies for advertisements. Negative externality- a cost imposed on an unrelated 3rd party. Private marginal cost- cost that the supplier bears when it produces one more unit of a good. Social marginal cost- cost that everyone in society bears when the supplier produces one more unit of a good.