ECON 1B03 Chapter Notes - Chapter 10: Social Cost, Demand Curve, Externality

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Shadab Qaiser

Document Summary

Externalities externalities: the uncompensated impact of one person"s actions on the wellbeing of a bystander: negative externality: externalities that has an adverse impact on the bystander, positive externality: externalities that have a beneficial impact on the bystander. When there are negative externalities, it involves the private costs along with the societal costs (the sum is known as the social cost, a form of deadweight) which are represented as the social cost curve. The social cost curve (social cost) is above that of the supply curve (private cost) The social optimum equilibrium is the point at which the social cost curve meets the demand curve lower qoptimum than qmarket internalizing the externality: altering incentives so that people take account of the external effects of their actions. Education can create educated citizens that not only contribute purely to their workplace but also to their social groups and political contributions.