ECN 153 Chapter Notes - Chapter 10: Collegehumor, Demand Curve, Smog

• School: Humber College
• Department: ECON
• Course: ECN 153
• Professor: H O C H E U N G

Document Summary

The u(cid:374)(cid:272)o(cid:373)pe(cid:374)sated i(cid:373)pa(cid:272)t of o(cid:374)e perso(cid:374)"s a(cid:272)tio(cid:374)s o(cid:374) the (cid:449)ell-being of a bystander. If the i(cid:373)pa(cid:272)t of a perso(cid:374)"s a(cid:272)tio(cid:374) is ad(cid:448)erse (cid:894)(cid:374)egati(cid:448)e(cid:895) the(cid:374) it is k(cid:374)o(cid:449)(cid:374) as (cid:374)egati(cid:448)e e(cid:454)ter(cid:374)alit(cid:455). If the i(cid:373)pa(cid:272)t of a perso(cid:374)"s a(cid:272)tio(cid:374) is (cid:271)e(cid:374)efi(cid:272)ial (cid:894)positi(cid:448)e(cid:895) the(cid:374) it is k(cid:374)o(cid:449)(cid:374) as positi(cid:448)e e(cid:454)ter(cid:374)alit(cid:455). In the presence of an externality, buyers and sellers neglect the effects of their actions when deciding how much to demand or supply as the market equilibrium is not efficient when there are externalities. Externalities come in many varieties, as do the policy responses that try to deal with the market failure: the exhaust from automobiles is a negative externality because it creates smog that other people have to breathe. As a result of this externality, drivers tend to pollute too much. The federal government attempts to solve this problem by setting emission standards: research into new technologies provides a positive externality because it creates knowledge that other people can use.