ECON 1123 1st Edition Lecture 16 Outline of Last Lecture I The theory of pure monopoly A Characteristics of Pure Monopoly B Monopoly Profits Outline of Current Lecture I Monopoly and Economic Efficiency II An extension of the competitive model Externalities A Characteristics of Private goods and public goods B Positive externalities External Benefits C Negative Externalities External Costs Current Lecture I Monopoly and Economic Efficiency Pure competition is efficient monopoly is not In monopoly Price MC This is a gap that implies inefficiency II An extension of the competitive model Externalities A Characteristics of Private goods and public goods Private good characteristics hamburgers cars 1 Rival in Consumption consumption by one person reduces consumption by others he gets the product you don t because there is only one of it and if he got it then it is not available to you 2 Exclusion of non payers is relatively easy by charging market price Public good characteristics National Defense Flood Control Project 1 Nonrival consumption Consumption by one person does not necessarily reduce consumption by others 2 Exclusion of non payers free riders from consumption of a public good is difficult or costly Externalities Effects of economic activities that are not taken into account by voluntary market exchanges rather these effects are external to the market mechanism 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 B Mixed goods with both private and public good characteristics are what generate externalities Positive externalities External Benefits has private characteristics private goods w individual rival benefits public good characteristics Better education faster technological progress for everyone better education produces more knowledge better education produces better health care Individually you come to OU to get yourself a higher paying job which is a private matter but if your education in turn helps society then that is a positive externality Dexternal society s demand for the non rival public good benefits of education pseudo demand schedule revealed through political rather than economic processes Qsociety optimal ouput taking into account both private and public benefits of education when Q society Q private the competitive market fails to provide the socially efficient output market only takes into account what you re willing to pay for implies that the government should undertake policies to increase the output of education beyond Q private Examples Subsides student loans government scholarships
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