{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Intro to Microeconomics_Agnello_Date_041510

Intro to Microeconomics_Agnello_Date_041510 - Figure 2...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Figure 2: Pollution and the Social Optimum Red: social cost (includes the cost of cleaning, harm to society) Blue: only supply cost (external cost) Operating along blue supply and demand curve gives the optimum and it is not correct - Positive externality - e.g. Education - Improves society - Lowers crime - Basic research (inventions) - Spreads technology to everyone - Property upkeep - Bystanders benefit - Forces on demand (Figure 3) - Here private demands understates social value - too low - Free market will underproduce - Equilibrium Q too low - inefficient Figure 3: Education and Social Optimum Private demand curve (blue) doesn’t include external positive spillovers, add vertical (red demand curve) Beneficial trades involving more Q are gone when observing just the blue curves; too low Q and too low P - Government may be needed to correct free markets when externalities persist - Internalize the externality - Get the private decision makers to correct their ways - Change incentives to change their ways - For negative externalities - Government needs to discourage activity - Tax market
Background image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}