Chapter 15 - Externalities

Chapter 15 - Externalities - EXTERNALITIES 15 CHAPTER...

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15 CHAPTER EXTERNALITIES
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Externalities in Our Lives Negative Externality imposes a cost: e.g., air pollution that causes asthma. Positive Externality creates a benefit: e.g., education that lowers crime.
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Negative Externalities: Pollution Trends in air pollution in the United States.
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Negative Externalities: Pollution Marginal social cost (MSC) is the marginal cost incurred by the entire society MSC = MC + Marginal external cost (MEC), where MC = Marginal private cost of producing the commodity
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Negative Externalities: Pollution MC and MSC curves. MEC is the vertical distance between MC and MSC .
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Negative Externalities: Pollution Equilibrium in the presence of external costs. Production is where MC equals marginal benefit.
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Negative Externalities: Pollution MB is less than MSC in the market equilibrium. Efficient quantity: where MSC=MB. The competitive market overproduces and creates a deadweight loss.
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Negative Externalities: Pollution Government Actions in the Face of External Costs There are three main methods that the government uses to cope with external costs: Taxes Emission charges Marketable permits
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This note was uploaded on 09/12/2011 for the course ECON 2100 taught by Professor Klimenko during the Fall '08 term at Georgia Institute of Technology.

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Chapter 15 - Externalities - EXTERNALITIES 15 CHAPTER...

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