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Unformatted text preview: Gains to Abe Gains to Fitch The Market (no communication) Without filter: Total Gains = $130 + $50 = $180 With filter: Total Gains = $100 + $100 = $200 MC of the filter = $30 & MB of the filter = $50 Loss in economic surplus = $20 Chapter 11: Externalities and Property Rights Slide 17 $50/day $100/day $130/day $100/day With filter Without filter Gains to Abe Gains to Fitch Assume Fitch and Abe can communicate at no cost Fitch offers Abe $40 to use the filter Economic surplus increases by $20 Costs and Benefits of Eliminating Toxic Waste (Part 2) Chapter 11: Externalities and Property Rights Slide 18 External Costs and Benefits The Coase Theorem z If at no cost people can negotiate the purchase and sale of the right to perform activities that cause externalities, they can always arrive at efficient solutions to problems caused by externalities....
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- Spring '08