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Chapter 5

ECON 1010 Chapter 5: Topics 27
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Department
Economics
Course
ECON 1010
Professor
Laura K.Brown
Semester
Spring

Description
oS78 ECON101 0 To find the social demand curve, add up the private marginal benefit and the marginal external benefit for each unit of good. The resulting curve is parallel to the private demand curve, where the vertical distance between the two is equal to the marginal external benefit. By making consumption decisions without accounting for their external benefit, maximum social surplus is not achieved. The deadweight loss is due to the presence of positive consumption externalities. Limitation of Invisible Hand Principle: action that maximises own satisfaction does not translate in the optimal amount of consumption for society as a whole Private negotiation occurs: offer to consume extra units at the price equal to the external benefit associated. Coase Theorem: If trade in an externality is possible and there are no transaction costs,
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