ECON 101 Lecture Notes - Lecture 10: Passive Smoking, Deadweight Loss, Transaction Cost
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ECON 101 Full Course Notes
Verified Note
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Document Summary
The failure of a market to reach an efficient outcome where all gains from trade are exhausted. Occurs when the quantity transacted differs from the efficient (welfare maximizing) quantity. When the activity of one entity (individual or firm) directly impacts the welfare of another in a way that is not reflected in the price. Unintended impacts not taken into account by the individual decision makers. 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 make decisions. Cost incurred by the individual decision maker only. Uncompensated marginal costs imposed on others as a result of actions. Marginal external cost (mec) taken by individual decision maker. An action that provides net benefits to others without their having to pay for it.
