CH-10 PPT - Chapter10 Externalities Microeconomics...

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Externalities M icroeconomics P R I N C I P L E S   O F P R I N C I P L E S   O F N. Gregory Mankiw N. Gregory Mankiw Chapter 10
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Definitions An externality arises when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives compensation for that effect. If the impact on the bystander is adverse, it is called a negative externality . If it is beneficial, it is called a positive externality .
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Private and Social Cost Private cost is the cost of producing an additional unit of a good or service that is borne by the producer of that good or service. Private cost is an other term for marginal cost. Social cost is the cost incurred by the producer and by everyone else in society. An externality in production exists when private cost is not equal to social cost
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Private and Social Value Private value is the benefit from an additional unit of a good or service that the consumer of that good or service receives.
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This note was uploaded on 09/25/2011 for the course BMGT 220 taught by Professor Bulmash during the Spring '08 term at Maryland.

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CH-10 PPT - Chapter10 Externalities Microeconomics...

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