ch11a - Chapter 11: Externalities and Property Rights...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 11: Externalities and Property Rights Monday, July 19
Background image of page 1

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

View Full DocumentRight Arrow Icon
DEFINITIONS external cost (or negative externality) : a cost of an activity that falls on people other than those who pursue the activity external benefit (or positive externality) : a benefit of an activity received by people other than those who pursue the activity
Background image of page 2
POLLUTION: A NEGATIVE EXTERNALITY Suppose that the marginal benefit from gasoline consumption is given by the function MB = 200 2Q (where Q is the quantity of gasoline), and the marginal cost to producers of production of gasoline is given by the function MC = 80 + Q . What we have here are the marginal private costs and benefits of gasoline, i.e. the costs that sellers must pay to produce, and the costs that buyers get directly from consuming. However, suppose that every unit of gasoline emits pollution that inflicts an estimated $30 worth of harm to society in general, rather than the buyer or seller in particular. This is called a marginal external cost ( MEC ) Then we have the marginal social cost function MSC = MC + MEC = ( 80 + Q ) + 30 So, MSC = 110 + Q
Background image of page 3

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

View Full DocumentRight Arrow Icon
NEGATIVE EXTERNALITY: GRAPH marginal private benefit MB = 200 2Q
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 14

ch11a - Chapter 11: Externalities and Property Rights...

This preview shows document pages 1 - 5. Sign up to view the full document.

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