ch16 - Chapter 16 Market failures OUTLINE Externalities and...

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Chapter 16 – Market failures OUTLINE Externalities and allocative efficiency Positive and negative externalities Common property resources Publicly provided goods o Efficient level of public good provision diagram Externalities and allocative efficiency Private cost: cost to the seller Private benefit: benefit to the buyer. External cost: cost to a 3 rd party. External benefit: benefit to a 3 rd party Social cost = private cost + external cost. Marginal social cost: MC S = MC P + MC E Social benefit = private benefit + external benefit. Marginal social benefit: MB S = MB P + MB E Total surplus equals… …Social benefit – Social cost …area between MB S curve and MC S curve Allocative efficiency occurs where total surplus is maximized (i.e. where MB S = MC S ) Maria Gallego EC120 - Chapter 16 – Market failures 1 of 7
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Positive and negative externalities Negative externality occurs when external costs exist (i.e. social cost exceeds private cost).
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This note was uploaded on 01/17/2012 for the course ECONOMICS 120 taught by Professor Mesta during the Fall '10 term at Wilfred Laurier University .

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ch16 - Chapter 16 Market failures OUTLINE Externalities and...

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