Econ 101 Winter 2010 Lecture 17

Econ 101 Winter 2010 Lecture 17 - Economics 101...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 17
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 1 22 Chapter 5 of text Available on CTools Quiz this week in discussion Reading Problem Set 9
Background image of page 2
Lecture 1 Example: Market for electricity $/kW/h Q (kW/h) Demand (MV) Supply (MC) Q* P* Marginal Damage from Pollution (MD) MCsoc = MC + MD Qeff MCsoc= MVsoc Deadweight Loss
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 1 Example: Pollution Suppose the right to generate pollution were guaranteed to the producer If production generates pollution, then to sell a unit of the good the producer must n Bear production cost; and n Forgo the opportunity to sell the pollution right to the general public n The market price of the right to pollute will be the marginal value of that right: i.e. the marginal pollution cost The external cost is “internalized” n The producer now faces the full social cost of producing the output.
Background image of page 4
Lecture 1 Example: Pollution $/unit Q MVsoc (Demand) MCproductio n MCpolluti on = MCsoc MCprod + MCpollution Qeff MCsoc= MVsoc Ppollution right MCprod + Ppollution right Q* P* MCprivate (Supply)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Lecture 1 Private Solutions to Externality Pollution example illustrates that the efficient outcome may still obtain in markets with externalities if n Property rights are defined and enforced over the right to benefit from, or to impose, an externality n Agents are free to trade these rights The efficiency of the outcome is independent of initial allocation of rights n Allocation of rights will affect distribution of wealth though
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 20

Econ 101 Winter 2010 Lecture 17 - Economics 101...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online