ECO101H1 Study Guide - Final Guide: Allocative Efficiency, Coase Theorem, Cost
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ECO101H1 Full Course Notes
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2. 4 emissions charge (tax) to achieve efficiency: alcohol: negative consumption externality, other externalities, the coase theorem. Externality: transaction between buyer and seller affects third party. Production externality: process of producing goods/services affects third party, both for the better/worse) e. g. pollution; Consumption externality: consuming of the goods/services affect third party, both for better/worse e. g. alcohol. - note: ss = sum of marginal costs for individual firms = private marginal costs; - social cost = private marginal costs + externality cost (cost to society as a whole) - social cost differs from private costs only when externality is present; Allocatively efficient level of output, with the presence of externality, occurs not at p=mc , but. A perfectly competitive market produces too high a level of output, while consumers confront too low a price; - in the presence of externalities, when private markets get it wrong (i. e. market failure), there exists the. Ss" private cost (= social cost because of the tax)
