Externality and public goods - Microeconomics for managers...

Microeconomics for managers
PGP I


Market power or price setting behaviour

Externality (positive and negative)

Public goods

Information asymmetry

Quantity
Price
S=MC
MSC
MEC
Q
*
Q
1
P *
P
1

Quantity
Price
S=MC
MSC
MEC
Q
*
Q
1
P *
P
1
S=MC+t
P
**

Quantity
Price
MC
MSB
MEB
Q *
Q
1
P *
P
1
D

Emission
Cost
E*
C*
MEC
MCA
C
1
C
2
E
1
E
2


Legally granted rights to use the particular
property concerned.

Well specified property rights may eliminate
he problem with externality

Coase theorem: Bargaining can achieve an
efficient allocation of resources irrespective
of initial assignment of property rights.
Factory’s
profit
Fisherman’s
profit
Total
profit
No filter, no treatment plant 500 100 600
Filter, no treatment plant 300 500 800
No filter, treatment plant