ECON 1B03 Chapter Notes - Chapter 10: Deadweight Loss, Economic Surplus, Demand Curve

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

In this chapter we examine why markets someimes fail to allocate resources eiciently, how government policies can potenially improve the market"s allocaion, and what kinds of policies are likely to work best. Externality: the uncompensated impact of one person"s acions on the well-being of a bystander. Posiive externality: if the externality is beneicial. Negaive externality: if the impact on the bystander is adverse. The market equilibrium is not eicient when there are externaliies. That is, the equilibrium fails to maximize the total beneit to society as a whole. Externaliies come in many varieies, the following are some examples and policies that work to address it: The exhaust from automobiles; seing emission standards for cars. Restored historic buildings; regulaing the destrucion of historic building and by providing tax breaks to owners who restore them. Carbon dioxide and other green house gas emissions from fossil fuel; taxes on carbon emissions as well as by implemening cap-and-trade system with tradable permits.