Econ Chapter 10 - Externalities

Econ Chapter 10 - Externalities - Econ Notes Chapter 10 –...

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Econ Notes Chapter 10 – Externalities Markets sometimes fail to allocate resources efficiently, government policies can potentially improve the market’s allocation, and some types of policies work better than others EXTERNALITY arises when a person influences someone but doesn’t pay or receive anything in compensation Externalities and Market Inefficiency Externalities cause markets to allocate resources inefficiently o Welfare Economics: A Recap At any given quantity, the height of the demand curve shows the willingness to pay of the marginal buyer The supply curve reflects the costs of producing aluminum The market allocates resources to maximize total value to customers and minimize the total costs to producers o Negative Externalities Aluminum factories emit pollution The cost to society of producing aluminum is larger than the cost to producers Social planners prefer to compromise, and to choose the level of aluminum production where the demand curve crosses the
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This note was uploaded on 04/21/2008 for the course ECO 201 taught by Professor Dunlevy during the Spring '08 term at Miami University.

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Econ Chapter 10 - Externalities - Econ Notes Chapter 10 –...

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