MicroEconomics - Lecture 11

MicroEconomics - Lecture 11 - Last Exam: Monopolistic...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Last Exam: Monopolistic Competition, Externalities 1. Externalities An externality refers to the uncompensated impact of one person’s actions on the well- being of a bystander. An externality arises… When a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect. Externalities cause markets to be inefficient, and thus fail to maximize total surplus. When the impact on the bystander is adverse, the externality is called a negative externality. Examples: Automobile exhaust Cigarette Smoking Barking dogs (loud pets) Loud stereos in an apartment building. When the impact on the bystander is beneficial, the externality is called a positive externality. Examples: Immunizations Restored historic buildings Research into new technologies Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead markets to produce a smaller quantity than is socially desirable. The intersection of the demand curve and the social-cost curve determines the optimal
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/09/2008 for the course ECON 2106 taught by Professor Minjaesong during the Fall '06 term at Georgia Tech.

Page1 / 3

MicroEconomics - Lecture 11 - Last Exam: Monopolistic...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online