Topic16_externality - Topic 16: Externality COMM 295 Ratna...

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Unformatted text preview: Topic 16: Externality COMM 295 Ratna K. Shrestha Introduction ntroduct on Externality arises when a person or firm engages in an activity (production or consumption) that influences the well-being of a bystander and yet either pays nor receives any compensation for neither pays nor receives any compensation for that effect. or example pollution is an externality because For example, pollution is an externality because the polluter does not pay for the damages it causes to the environment. 2 ypes of Externality Types of Externality Externality can be Negative or Positive depending upon whether the action of one party imposes a cost or benefit on another party. egative Externalities Negative Externalities : Examples Noise, vehicle exhaust, acid rain, ozone depletion caused by chlorofluorocarbons (CFCs), global warming due to greenhouse gases (carbon particles from fossil fuel combustion, etc.). Positive Externality : Examples research and innovation, neighbors nice ackyard, Immunization. backyard, Immunization. 3 ACID RAIN 4 5 ypes of Externality Types of Externality xternality can be roduction or consumption Externality can be production or consumption depending on whether the externality is caused by production or consumption activities. Examples of production externality : A paper factory dumping its waste to the river. Example of consumption externality : Cigarette smoking in the classroom, Drinking and driving. 6 Inefficiency of Competition with Consider a paper factory that pollutes the Externality environment during its production process....
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This note was uploaded on 05/11/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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Topic16_externality - Topic 16: Externality COMM 295 Ratna...

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