Ch10 - &KDSWHU ¡¢£[WHUQDOLWLHV In this chapter look for the answers to these questions:KDW LV DQ H[WHUQDOLW\$:K GR H[WHUQDOLWLHV PDNH

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Unformatted text preview: &KDSWHU ¡¢£ ([WHUQDOLWLHV In this chapter¡ look for the answers to these questions# :KDW LV DQ H[WHUQDOLW\$ :K\ GR H[WHUQDOLWLHV PDNH PDUNHW RXWFRPHV LQHIILFLHQW$ :KDW SXEOLF SROLFLHV DLP WR VROYH WKH SUREOHP RI H[WHUQDOLWLHV$ +RZ FDQ SHRSOH VRPHWLPHV VROYH WKH SUREOHP RI H[WHUQDOLWLHV RQ WKHLU RZQ$ :K\ GR VXFK SULYDWH VROXWLRQV QRW DOZD\V ZRUN$ EXTERNALITIES Introduction 2QH RI WKH SULQFLSOHV IURP &KDSWHU ¡¢ Darkets are usually a good way to organize economy activity¡ ,Q DEVHQFH RI PDUNHW IDLOXUHV£ WKH FRPSHWLWLYH PDUNHW RXWFRPH LV HIILFLHQW£ PD[LPL]HV WRWDO VXUSOXV¤ 2QH W\SH RI PDUNHW IDLOXUH¢ externality £ WKH XQFRPSHQVDWHG LPSDFW RI RQH SHUVRQ’V DFWLRQV RQ WKH ZHOO¥EHLQJ RI D E\VWDQGHU¤ ([WHUQDOLWLHV FDQ EH negative RU positive £ GHSHQGLQJ RQ ZKHWKHU LPSDFW RQ E\VWDQGHU LV DGYHUVH RU EHQHILFLDO¤ EXTERNALITIES Introduction 6HOI¡LQWHUHVWHG EX\HUV DQG VHOOHUV QHJOHFW WKH H[WHUQDO FRVWV RU EHQHILWV RI WKHLU DFWLRQV¢ VR WKH PDUNHW RXWFRPH LV QRW HIILFLHQW£ $QRWKHU SULQFLSOH IURP &KDSWHU ¤¥ >overnments can sometimes improve market outcomes¡ ,Q SUHVHQFH RI H[WHUQDOLWLHV¢ SXEOLF SROLF\ FDQ LPSURYH HIILFLHQF\£ EXTERNALITIES Examples of Negative Externalities $LU SROOXWLRQ IURP D IDFWRU\ 7KH QHLJKERU’V EDUNLQJ GRJ /DWH¡QLJKW VWHUHR EODVWLQJ IURP WKH GRUP URRP QH[W WR \RXUV 1RLVH SROOXWLRQ IURP FRQVWUXFWLRQ SURMHFWV +HDOWK ULVN WR RWKHUV IURP VHFRQG¡KDQG VPRNH 7DONLQJ RQ FHOO SKRQH ZKLOH GULYLQJ PDNHV WKH URDGV OHVV VDIH IRU RWKHUV EXTERNALITIES ¡ ¢ £ ¤ ¥ ¦ ¡ ¢¡ £¡ ¤¡ Q §JDOORQV¨ P © 7KH PDUNHW IRU JDVROLQH Recap of Welfare Economics 'HPDQG FXUYH VKRZV private value ª WKH YDOXH WR EX\HUV §WKH SULFHV WKH\ DUH ZLOOLQJ WR SD\¨« 6XSSO\ FXUYH VKRZV private cost ª WKH FRVWV GLUHFWO\ LQFXUUHG E\ VHOOHUV« 7KH PDUNHW HT’P PD[LPL]HV FRQVXPHU ¬ SURGXFHU VXUSOXV« ©£«¦¡ £¦ EXTERNALITIES ¡ ¢ £ ¤ ¥ ¦ ¡ ¢¡ £¡ ¤¡ Q §JDOORQV¨ P © 7KH PDUNHW IRU JDVROLQH Analysis of a Negative Externality 6XSSO\ §SULYDWH FRVW¨ External cost " YDOXH RI WKH QHJDWLYH LPSDFW RQ E\VWDQGHUV " ©¢ SHU JDOORQ §YDOXH RI KDUP IURP VPRJª JUHHQKRXVH JDVHV¨ Social cost " SULYDWH « H[WHUQDO FRVW H[WHUQDO FRVW EXTERNALITIES ¡ ¢ £ ¤ ¥ ¦ ¡ ¢¡ £¡ ¤¡ Q §JDOORQV¨ P © 7KH PDUNHW IRU JDVROLQH Analysis of a Negative Externality ' 6 6RFLDO FRVW 7KH VRFLDOO\ RSWLPDO TXDQWLW\ LV £¡ JDOORQVª $W DQ\ Q ! £¡« YDOXH RI DGGLWLRQDO JDV H[FHHGV VRFLDO FRVWª $W DQ\ Q # £¡« VRFLDO FRVW RI WKH ODVW JDOORQ LV JUHDWHU WKDQ LWV YDOXH WR VRFLHW\ª £¦ EXTERNALITIES ¡ ¢ £ ¤ ¥ ¦ ¡ ¢¡ £¡ ¤¡ Q §JDOORQV¨ P © 7KH PDUNHW IRU JDVROLQH Analysis of a Negative Externality ' 6 6RFLDO FRVW 0DUNHW HT’P § Q " £¦¨ LV JUHDWHU WKDQ VRFLDO RSWLPXP § Q " £¡¨ª £¦ 2QH VROXWLRQ« WD[ VHOOHUV ©¢¬JDOORQ­ ZRXOG VKLIW S FXUYH XS ©¢ª EXTERNALITIES “Internalizing the Externality” Internalizing the externality ¡ DOWHULQJ LQFHQWLYHV VR WKDW SHRSOH WDNH DFFRXQW RI WKH H[WHUQDO HIIHFWV RI WKHLU DFWLRQV ,Q RXU H[DPSOH¢ WKH £¤¥JDOORQ WD[ RQ VHOOHUV PDNHV...
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This note was uploaded on 03/22/2011 for the course ECON 200 taught by Professor Ta during the Spring '07 term at University of Washington.

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Ch10 - &KDSWHU ¡¢£[WHUQDOLWLHV In this chapter look for the answers to these questions:KDW LV DQ H[WHUQDOLW\$:K GR H[WHUQDOLWLHV PDNH

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