Econ_11_Main_Points_19

Econ_11_Main_Points_19 - Chapter 19: Main Points 1 1. A...

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Chapter 19: Main Points 1 1. A positive externality is a good effect which is felt by someone who neither produces nor consumes the good or service involved in the transaction . 2. A negative externality is a bad effect which is felt by someone who neither produces nor consumes the good or service involved in the transaction . 3. Firms may create externalities that affect other firms. Interfirm externalities may be positive or negative. A firm may take market share from another firm (Apple’s iPod taking sales from Sony’s Walkman). Or a firm may reduce its costs, which increases demand for both its product and a complement produced by another firm. 4. There may be externalities in utility, positive (going to a movie with friends) or negative (schadenfreude). 5. Public goods are nonexclusive . It is expensive or impossible to exclude someone from consuming them who does not pay the costs of producing the goods. 6. Professor A.C. Pigou studied the problem of market failure--the market fails to correctly price the goods and services to measure all costs and benefits entailed in their production and consumption .
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Chapter 19: Main Points 2 7. Goods that created positive externalities are underproduced. Goods that create negative externalities are overproduced. 8. Pigou believed that appropriate government action would be to subsidize the good which has a positive externality and to tax or impose a regulation to limit the production of a good with a negative externality .
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Chapter 19: Main Points 3 9. Aside from taxes and subsidies, other solutions exist. For
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Econ_11_Main_Points_19 - Chapter 19: Main Points 1 1. A...

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