Econ 201 1st Edition Lecture 14 I Externalities An externality is a benefit or cost by a non market participant from another s consumption or production behaviors EX pollution second hand smoke etc A Negative Consumption Externality A negative consumption externality occurs when private consumption behavior imposes costs on other individuals Anytime there is an externality generate some DWL Even if negative externalities doesn t mean that socially optimal level of output 0 Can have a negative benefit net cost With negative externalities the market will over provide a good B Positive consumption Externality These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Vaccinations child in daycare on campus and students living in dorms work there Sly receives benefit from students getting the meningitis B vaccine because his child is safer Private benefit plus some With positive externality markets will under provide a good C Negative Production Externality D Positive Production Externalities Have to study it on your own he didn t go over examples E Solutions to Externalities 1 Coase Theorem a By assigning effective enforceable property rights over goods markets with externalities the socially optimal level of output can be negotiated reached 2 Taxes Subsidies a Levy a tax or offer a subsidy exactly equal to the value of the negative positive externality 3 Organized market Government Intervention
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