ECON 3B03 Chapter Notes - Chapter 6: Externality
6 Dec 2014
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Document Summary
Negotiated compensation: externality: when a person/firm"s action affects the welfare of another person/firm without appropriate monetary compensation, will end up getting too much of negative externalities and too little of positive externalities, can fix this by awarding monetary compensation to party that acts against own interest, person with property rights will get paid by person without them, property rights are determined by customs or by law, private marginal cost (pmc): dollar cost to the firm of producing one more unit of output, marginal damage (md): dollar cost to the firm"s neighbors of the harm done to them when the firm increase output by one unit, social marginal cost (smc): cost to society of an increase in the firm"s output, private marginal benefit (pmb): benefit to the firm of producing one more unit of output, social marginal benefit (smb): benefit received by society when an additional unit of the good is produced and consumed.
