ECON 1050 Chapter Notes - Chapter 16: Coase Theorem, Externality

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An externality is a cost or benefit that arises from production and falls on someone other than. Chapter 16 externalities the person or the firm choosing the action. A negative externality imposes a cost and a positive externality creates a benefit. The four types of externality are: negative production externalities, positive production externalities, negative consumption externalities, positive consumption externalities. Burning coal to generate electricity emits carbon dioxide. Logging and clearing forests destroys the habitat of wildlife and adds carbon dioxide to the atmosphere. Other examples are noise from aircraft and trucks, pollution of rivers and lakes, and air pollution in major cities from auto exhaust. Positive production externalities are less common than negative externalities. Two examples arise in honey and fruit production. By locating honeybees next to a fruit orchard, fruit growers gets an external benefit from the bees, which pollinate the fruit orchards and boost fruit output. Honey producers get an external benefit from the orchards.

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