Econ 106 1st Edition Lecture 12 Outline of Last Lecture I. Productive EfficiencyII. Allocative EfficiencyIII. Market FailureIV. Marginal CostV. Marginal BenefitVI. Consumer SurplusVII. Producer SurplusVIII. Public GoodIX. Private GoodOutline of Current Lecture I. ExternalitiesII. Options for Negative Externalities III. Elasticity a. Elasticity of Demandb. Elasticity of Supplyc. Unit Elastic Current LectureExternalities (spillovers)- Negative – costs are imposed on unconnected third parties- Positive – bestows benefits on unconnected third parties Options for Negative Externalities- Legal, Clean Air Act, EPA, Direct Controls, Emission Standards, Cap & TradeElasticity - A measure of the responsiveness of one variable to a change in some other variable to which it is casually related, measured as a ratio of percent changesA. Elasticity of Demand- Ed = % change of quantity demanded / % change of priceThese 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.- Ed < 1 = inelastic- Ed = 1 = unit elastic- Ed > 1 = elastic - Ed = 0 perfectly inelastic- Ed = infinity = infinitely elastic - Total Revenue (TR) = rise in price, decrease in quantity - When inelastic, the price is bigger than quantity if Ed < 1, TR increases as P decreasesB. Elasticity of Supply- Es = 0 = perfectly inelastic- Es < 1 = inelastic- Es = 1 = unit elastic- Es > 1 = elastic- Es = infinitely = infinitely elastic C. Unit Elastic - Ed = 1, TR remains unchanged - The steeper the line, the more inelastic- The wider the line, the more