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xid-6655731_2 - T hurs Sept 29 1 Externalities welfare...

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T hurs., Sept 29 1. Externalities - welfare, production, or utility of one person is affected by unintended actions or influences of another, reflecting costs or benefits that aren't recognized in a market - common property, open access, public goods. Many environmental and resource problems represent various externalities When externalities exist, private costs/benefits are not equal to social costs/benefits. Technological externalities - not reflected in market prices; leads to misallocation of real variables/factors. Pecuniary externalities - effect is on price only - no misallocation of resources. If externalities result in inefficiency, what can, or should, be done about them? a. Nothing The costs of reducing or ameliorating externalities may exceed the expected benefits. b. Try to correct them… …if the benefits of reducing the externalities are expected to exceed the costs. 2 . Corrective approaches to externalities and other market failures : A. Government intervention or regulation - Under what circumstances, When? How? What are the costs? What are the benefits? - Direct government intervention Reforestation Restoration of contaminated sites (leaking gas tanks in Florida)
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Beach renourishment & restoration (about 50 projects in Fla.) - Command & Control regulation Limits on level or amount of pollution; often by specific course or method.
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