CHAP 15 - Externalities - CHAP 15 Externalities: examples...

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CHAP 15 CHAP 15 Externalities: examples of Externalities: examples of pollution and knowledge pollution and knowledge Olivier Giovannoni 304K: Introduction to Microeconomics Nov. 26,
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Externalities are consequences that arise from a given activity and that fall on the shoulders of someone not directly concerned by that activity. Those external consequences can be either positive or negative. We are going to see the following examples: Negative externality: pollution is the consequence of production, yet consumers pay a cost (they suffer from it) Positive externality: knowledge is the consequence of research, yet consumers benefit from it (they take advantage of it). But there are many externalities everywhere. The restoration of a building has a positive impact on your well-being. Second-hand smoke irritates you. Traffic is polluting and making you late. Etc… 1. What are externalities? 1. What are externalities?
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There are various types of pollution: visual pollution, noise pollution, chemical pollution… All those activities have two costs: the (regular) private cost and the external cost, which is related to the externality. But economists think at the margin ; and here we are interested in the (total) marginal social cost : MSC = MC + MEC In addition, economists just don’t want to get rid of all possible pollution. We want to find the “right”, or equilibrium level of pollution, which will
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CHAP 15 - Externalities - CHAP 15 Externalities: examples...

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