Chapter 5 - Chapter 5 1.11) In an article in the...

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Chapter 5 1.11) In an article in the agriculture magazine Choices, Oregon State University economist JunJie Wu made the following observation about the conversion of farmland to urban development: Land use provides many economic and social benefits, but often comes at a substantial cost to the environment. Although most economic cost are figured into land use decision, most environmental externalities are not. These environmental “externalities” cause a divergence between private and social costs for some land uses, leading to an inefficient land allocation. For example, developers may not bear all the environmental and infrastructural costs generated by their projects. Such “market failures” provide a justification for private conservation efforts and public land use planning and regulation. What does the author mean by market failures and inefficient land allocation ? Explain why the author describes inefficient land allocation as a market failure. Illustrate your argument with a graph showing the market for land to be used for urban development. Market failure refers to the situations in which the market fails to produce the efficient level of output; by “market failure” he means that a market with no regulations will be economically efficient. And by inefficient land allocation he means the change of farmland into developed land. Since the market can’t handle the
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This note was uploaded on 08/09/2011 for the course ECONOMICS --- taught by Professor --- during the Spring '11 term at Universidad Iberoamericana.

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Chapter 5 - Chapter 5 1.11) In an article in the...

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