ECON 101 Lecture Notes - Lecture 10: Traffic Congestion, Influenza Vaccine, Marginal Cost
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ECON 101 Full Course Notes
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Document Summary
Externalities when activity of one entity/firm/individual directly impacts welfare of another in a way that is not reflected in the price. External to the market: unintended impacts not taken into account by the individual decision makers. Negative externality: an action that imposes net costs on others without their being compensated, the individual decision maker does not have to pay these costs, so does not take them into account when making decision, ex: Noise being woken up at night by the sound someone else is making. Supply and demand analysis: negative externalities: remember: height of demand curve represents marginal cost, private cost: Cost incurred by the individual decision maker only: marginal private cost (mpc): Incremental costs to private owner: marginal external cost (mec): Uncompensated marginal costs imposed on others as a result of actions taken by individual decision maker: social cost: Total costs incurred by society: marginal social cost (msc):
