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) Bees pollinate the apple orchards. 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) If the external benefit is not considered, the bee keepers optimal number of hives will be less than the socially optimal number of hives....
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