Lecture 17 - 11/16/2009 1 Reading for today text Ch 15 pp....

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Unformatted text preview: 11/16/2009 1 Reading for today text Ch 15 pp. 424-450 (394-414 5 th edition) Announcements Announcements Assumptions Assumptions Individual buyers and sellers are too small to affect the market The products in the market are homogenous: every one is exactly alike Information: everyone knows everything about the Information: everyone knows everything about the product and the price Products are private goods, privately consumed with no affects on other people Ignore time Externality Externality externality the cost of producing a good or the benefits from consuming a good spill over to those not producing or consuming the good externalities in production and consumption positive and negative externalities 1 negative: costs imposed on others positive: benefits others enjoy typically, efficiency is difficult to achieve because agents may not face the full costs of their actions agents may not receive the full rewards of their actions Externality Externality examples SUVs create safety risks for other drivers highway congestion the environment and litter/trash air pollution education 1 university research marginal external costs : additional costs incurred by society that firms dont pay for marginal social cost...
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Lecture 17 - 11/16/2009 1 Reading for today text Ch 15 pp....

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