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lec14_begin - Lecture 14 Friday Oct 9 Lecture Next week 1...

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Lecture 14 Friday, Oct. 9 Next week: 1. Monday: Midterm :( 2. Tues: No homework due. :) 3. Wed: No class. :) 4. No sections next week. :) 5. Fri: Regular Lecture :) Lecture 1 Handy summary of effects of policies 2. Positive and Negative Externalities 3. A negative externality in Econland and Government Policy. .
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For all policies on next page: Goes to consumers Goes to producers Is loss in total surplus from output being too low (Q low instead of Q efficient) Q $ D S Q l ow Q effici ent Where goes depends upon policy Policy Where green box goes Tax Government Quota Quota Owners Price Ceiling (optimistic, fairy tale case) Consumers Price Ceiling (real world) Partly destroyed by misallocation and waiting lines Price Floor (optimistic, fairy tale case Producers Price Floor (real world) Partly destroyed by misallocation and waiting lines
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Where does subsidy fit the table? It doesn’t fit in. Subsidies make quantity too high. Externalities “An externality arises when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect.”
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