lectures - 8Th lecture econ 101 Market failures Competitive...

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8 Th lecture econ 101 3/23/11 Market failures Competitive markets are efficient excepte when there are externalities. Externality: uncompensated impact at our person’s actions(consumption /production) on well being of by standers. Negative externality’ impact is negative Ex action Externality smoking Second hand smoking Aluminum Production Car alarm Pollution ,smog noise. Owing a dog Barking Positive externality; impact is positive Ex Action Externality Getting education Lower crime, better democracy Preserving a historic building Ecstatic/historic value Recherché into new technology Add to the body of knowledge Why are externalities a problem? Decision -makers fail to take into account the external costs/benefit (costs/benefit to by standers )of their behavior.=> over or underproduction See note 1 Market maximizes for consumer and producer of aluminum ..How about the society as a whole ? Aluminum product has external costs: cost from pollution(health costs)
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lectures - 8Th lecture econ 101 Market failures Competitive...

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