Chap020 - Chapter 20 - Externalities and Public Goods...

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Chapter 20 - Externalities and Public Goods Chapter 20: Externalities and Public Goods Main Concepts and Learning Objectives This chapter focuses on situations when individual incentives differ from public incentives. In these situations, the market result may fail to allocate resources correctly. The chapter starts by describing externalities as situations when costs or benefits from market transactions fall on parties not part of the transaction. The chapter then examines two possible sources of solutions to the problem of externalities—the private market and the public sector—pointing out the limitations of each. The chapter ends by discussing common property resources, which are rival, and public goods, which are nonrival; both of these types of goods are nonexcludable. The chapter discusses appropriate policies for protection and provision of these goods. Students who master the material presented in this chapter will be able to: Describe externalities and understand why private markets may misallocate resources in the presence of externalities. Show and analyze graphically the effects of a negative or positive externality. Discuss and evaluate private market solutions to the problems of externalities. Discuss and evaluate public solutions to the problems of externalities. Explain why common property resources tend to be overused and analyze
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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Chap020 - Chapter 20 - Externalities and Public Goods...

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