Chapter 9 Externalities

Chapter 9 Externalities - Chapter 9 Externalities...

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Chapter 9 Externalities Introduction o Markets are usually a good way to organize economy activity o One type of market failure: externality, the uncompensated impact of one person’s actions on the well-being of a bystander. o Externalities can be positive or negative, depending on whether impact on bystander is positive or negative o Self-interested buyers and sellers neglect the external costs or benefits of their actions, so the market outcome is not efficient o Governments can sometimes improve market outcomes Examples of Negative Externalities o Air pollution o Neighbor’s barking dog o Late-night stereo blasting from the dorm room next to yours o Noise pollution o Health risks from second-hand smoke o Talking on cell phone while driving makes the roads less safe for others Recap of Welfare Economics o The market eq’m maximizes consumer + producer surplus o Supply curve shows private cost , the costs directly incurred by sellers o Demand curve shows private value , the value to buyers (the prices they are
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Chapter 9 Externalities - Chapter 9 Externalities...

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