This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: ▽ Production marginal private cost < marginal social cost e.g. ×Air and water pollution ×Noise ×Crime ▽ Consumption marginal private benefit > marginal social benefit eg. ×Cigarettes smoking ×Drunk driving b) Use a diagram to explain why the existence of externalities means that the market will provide an inefficient outcome? c) In the case of unfavourable production externalities, what might governments do to correct the inefficiency of the market? ) Legislation ) Specific taxes ) Property rights and individual bargaining (Coase Theorem)...
View Full Document
This note was uploaded on 09/12/2010 for the course ECON 1101 at University of New South Wales.