ECO 1102 Chapter Notes - Chapter 10: Deadweight Loss, Oc Transpo, Social Cost

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: David Gray

Document Summary

Negative externality: any negative spillover cost stemming from a production activity that is imposed on a party other than the decision maker. Decision maker does not face the external cost. Examples a crack house operating next to a day care centre a pulp and paper mill upstream from a fishery. Positive externality: any positive spillover benefit stemming from a production activity that is imposed on a party other than the decision maker. The decision maker does not reap the external benefit. Oc transpo and stores near the transitway textbook case: beekeeper and orchard. Both + and - externalities cause market failure in the form of an inefficient level of output: Reminder: this means that qs = qd at the level of output. Equivalently, the marginal benefit, which is the consumer"s willingness to pay for the last unit, does not equal the suppliers" valuation of the last unit, which is the cost of production.