Externality and public goods

Externality and public goods - Microeconomicsfor managers...

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Externality and Public Goods Microeconomics for  managers PGP I
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Market power or price setting behaviour Externality (positive and negative) Public goods Information asymmetry Sources of market failure
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Negative Externality Quantity Price S=MC MSC MEC Q* Q1 P* P 1
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Pigovian tax Quantity Price S=MC MSC MEC Q* Q1 P* P 1 S=MC+t P* *
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Positive Externality Quantity Price MC MSB MEB Q* Q1 P* P 1 D
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Correcting negative externality:  Standard vs. Fee Emission Cost E* C* MEC MCA C 1 C 2 E 1 E 2
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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.  Correcting externality: property  rights Factory’s  profit Fisherman’s  profit Total  profit No filter, no treatment plant
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