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Econ Lecture 21 - Explicit 3 implicit 1(opportunity cost of...

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Econ Lecture 21 16:07 Market Failure externalities Arthur Cecil Pigou’s Question: What if privat costs don’t equal social costs Externalities- positive and negative in consumption and production Optimal amount of negative externality does not equal zero Optimal -Where msb=msc How do we get where msb = msc -Levy tax on externalities Auction the right to commit externalities What if there is a difference between private and social costs between producing  some goods – what is the diversion – Private producer, social consumer Marginal cost might not reflect what social costs
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Unformatted text preview: Explicit 3 + implicit 1 (opportunity cost of the wait) negative externality 1.25 (halitosis)= $5.25 • Transaction has two parties • You and seller, you and your mom • Externalities – legal studies • Neighbor effects – synonyms however (look below) Pigou • Not all externalities are negative – third parties are made better off (positive externalities) • Negative extra in consumptions – consume something and makes other people worse off • Internalizing the externality of his consumption decision...
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