Chap011.1 - Chapter 11 Externalities and Property Rights...

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1 Externalities and Property Rights Chapter 11: Externalities and Property Rights Slide 2 External Costs and Benefits External Cost (negative externality) z A cost of an activity that falls on people other than those who pursue the activity External Benefit (positive externality) z A benefit of an activity received by people other than those who pursue the activity Chapter 11: Externalities and Property Rights Slide 3 External Costs and Benefits Externalities reduce economic efficiency. Solutions of externalities may be efficient. Chapter 11: Externalities and Property Rights Slide 4 External Costs and Benefits When efficient solutions to externalities are not possible, government intervention or other collective action may be used.
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Unformatted text preview: Chapter 11: Externalities and Property Rights Slide 5 External Costs and Benefits ± How Externalities Affect Resource Allocation z Does the honeybee keeper face the right incentives? (Part I) ² Bees pollinate the apple orchards. ² The honeybee keeper may not consider the external benefit to the apple growers when considering the optimal number of hives. Chapter 11: Externalities and Property Rights Slide 6 External Costs and Benefits ± How Externalities Affect Resource Allocation z Does the honeybee keeper face the right incentives? (Part I) ² If the external benefit is not considered, the bee keeper’s optimal number of hives will be less than the socially optimal number of hives....
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