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business economics notes-6

business economics notes-6 - Econ5103Business Economics...

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  1 Econ 5103 Business  Economics Lecture Notes 6
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  2 Important Information Regarding with  the Mid-Session Exam The Mid-Session Exam will be held on Monday, 19/04/2010 at 19:00 to 21:00 (usual lecture date and time) in KEITH BURROWS THEATRE (denoted by J14 in the campus map). Please note that the exam will be held in a different place than our usual lecture room. You should bring your own calculator ! The exam will consist of two parts: Part I: 20 Multiple-choice questions from the materials captured from Week 1 to Week 6 . Part II: 1 Essay/Problem type question from the materials covered from Week 1 to Week 5 . Part II question will be similar to the assignment questions. Since there will be a mid-session exam in Week 7, Assignment 6 will be due in Week 8 not in Week 7. That means you will submit Assignment 6 and Assignment 7 in Week 8 to your tutors.
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  3 Part I Externalities, common resources and property rights
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  4 Learning Objectives Define positive and negative externalities Explain why competitive market equilibrium is not efficient in the presence of externalities State Coase theorem and apply it to simple externality problems Identify regulations and laws dealing with externalities Explain how government can use market-based instruments to deal with externalities Define common resources Explain how various property regimes can be used to manage common resources Discuss the special problems of managing global commons Define positional externalities Explain how positional arms races arise and how to control them
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  5 Externalities and resource  allocation Many activities generate costs or benefits that accrue to people not directly involved in those activities Externality: An external cost or benefit of an activity
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  6 Externalities and resource  allocation External cost (Negative externality): A cost of an activity that falls on people other than those who pursue the activity External benefit (Positive externality): A Benefit of an activity received by people other than those who pursue the activity
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  7 Does the beekeeper face the right incentives?  (Part I) Beekeeper’s hives constitute an external benefit or a positive externality Bees pollinate the apple orchards The honeybee keeper may not consider the external benefit to the apple growers when considering the optimal number of hives Then, the bee keeper’s optimal number of hives will be less than the socially optimal number of hives
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  8 Does the beekeeper face the right incentives?  (Part II) If the hives are located near a childcare centre, additional hives will cause more children to get stung by the bees For the children, the bee hives create an external cost If the external costs are not considered, the optimal number of hives for the beekeeper will be greater than the socially optimal number of hives
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  9 Externalities and economic surplus
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  10 How external benefits affect resource  allocation
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