section3_brian - 1 Section Notes Week 3 Outline Key...

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1 Section Notes Week 3 Outline Key Concepts Announcements: Monday OH Coase Theorem Questions on practice problems Transaction Costs Tradable Permits Shadow Price Coase Theorem: Discussion Heterogeneity Overview of Section Today This week’s lectures were pretty intense, as you may have noticed. Up until this week, the class was all about computing and comparing outcomes with an externality. This meant a lot of computational problems, like what I gave you in section notes and practice problems. The major idea? Externalities and how you deal with them. Now he introduced three more huge concepts in economics, three more assumptions of your previous micro-economic courses that we’re deconstructing: (1) property rights and transaction costs, (2) heterogeneity, and (3) full information. Each of these could easily take a full section themselves. For each you need to know the key graph(s), and be able to articulate how they affect policy in an essay question. I cannot possibly cover each adequately today, plus I think many of you are not fully comfortable with the computation stuff from last week. So today I am just going to do a wrap up of externalities and policy, backtracking a bit to clarify notation and go over any problems in detail. Next week I’ll hit on the outstanding topics; David’s promised to take public goods slowly next week. Notation (Acronym) Clarification Social Welfare (SW) =Total Surplus (TS) =CS+PS+TEC+GR Marg. Priv. Benefit (MPB) =Marg. Benefit (MB) =(Inverse) Demand Marg. Priv. Cost (MPC) =Marg. Cost (MC) =Supply Total Ext. Cost (TEC) =Total Env. Cost (TEC) Env. Welfare (EW) = Env. Surplus (ES) =TEB (“Total Ext. Benefit”) - TEC
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