ECON 1000 Chapter Notes - Chapter 16: Coase Theorem, Mortgage Loan, Pigovian Tax

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Steven Edwards

Document Summary

Externality: is a cost or benefit that arises from production and falls on someone other than the person or the firm choosing the action: negative externality imposes, positive externality creates a benefit. The four types of externality are: negative production externalities (common, burning coal, logging, noise from aircraft and trucks, pollution of lakes, positive production externalities (less common, honey and fruit production: locating bee next to fruit orchard benefits both. Marginal external cost is a the vertical distance from the. When output is 3 million l, the mc is and marginal. External cost is 0. 75$ so msc is 1. 75$ Equilibrium and amount of pollution: market for a good with an externality that is unregulated, the amount of pollution created depends on the equilibrium quantity of the good produced. At market equilibrium, msb is less than msc, so the market produces an inefficient quantity of the good (overproduction) (deadweight loss) At the efficient quantity of the good, msc =