Lecture 17 - 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 ¡ SUV’s 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 don’t pay for ¡ marginal social cost...
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Lecture 17 - 1 Reading for today text Ch 15 pp...

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