L09 - 10/5/2011 Announcements Announcements Reading for...

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10/5/2011 1 Announcements Reading for today Text Chapter 8 countering externalities with taxes, subsidies, cap and trade Monday Review–email questions from old practice exams Homework 4 solutions are posted Complete the homework before section Announcements Exam 1: Monday, October 10, 8 10pm Dr. Proulx’s extra availability: F 3 4pm M107 Lorch Pooled Office Hours: Sunday October 9 1 4pm AH AUD B Practice problems from old exams are posted on the website. Announcements Exam 1: Monday, October 10, 8 10pm in these rooms GSI Sections Room Jason Kerwin 311 140 Lorch Paolo Abarcar 304, 309 140 Lorch Bingxin Chen 305, 308 140 Lorch Yun Chen 303, 310 AUD 3 MLB Enda Hargaden 301, 315 AUD 3 MLB Alex Russov 302, 316 AUD 3 MLB Assumptions Individual buyers and sellers are too small to affect the market No barriers to entry into the market The products in the market are homogenous: every one is exactly alike Information: everyone knows everything about the product and the price Products are “private goods”, privately produced and consumed with no affects on other people Static models: time not explicitly modeled MC SOCIAL DeadWeight Loss Negative Externality MC Quantity ($/unit) PRIVATE D (MARGINAL BENEFIT) Q C competitive outcome is not efficient deadweight loss from negative externality efficient level of output marginal social cost is equal to marginal benefit Q * 28 Reduction in External Cost MB SOCIAL Quantity ($/unit) S (MC) MB PRIVATE Q C In equilibrium Q D =Q S market demand reflects marginal private benefits Positive Externality marginal external benefits additional benefits to society that consumers don’t pay for marginal social benefit benefits to consumers and others = marginal private benefits + marginal external benefits 29
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10/5/2011 2 Increase in Social Benefits MB SOCIAL Quantity ($/unit) S (MC) MB PRIVATE Q * Q C Positive Externality too little produced competitive outcome is not efficient efficient level of output marginal cost is equal to marginal social benefit Q 1 Increase in Social Cost 29 DeadWeight Loss MB SOCIAL Quantity ($/unit) S (MC) MB PRIVATE Q * Q C Positive Externality too little produced competitive outcome is not efficient efficient level of output marginal cost is equal to marginal social benefit market failure (need a market for the externality) deadweight loss from positive externality 29 Increase in External Benefit Alleviating Problems Alleviating problems caused by externalities
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This note was uploaded on 02/13/2012 for the course ASTRO 101 taught by Professor Hartmann,bergin during the Winter '08 term at University of Michigan.

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L09 - 10/5/2011 Announcements Announcements Reading for...

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