Externalities

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Externalities

This lecture Dr. Clark explained and graphed externalities. He went over positive and negative externalities


Lecture number:
17
Pages:
2
Type:
Lecture Note
School:
University of Oklahoma
Course:
Econ 1123 - Princ. of Econ-Micro
Edition:
1

Unformatted text preview:

ECON 1123 1st Edition Lecture 17 Outline From Previous Lecture (Lecture 16) 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 Outline Lecture 17 I. Private Goods and Public Goods demand schedules II. Positive Externalities (or external benefits) revisited III. Negative Externalities (or external costs) pollution Lecture 17 Notes I. Private Goods and Public Goods demand schedules Private goods- rival and exclusion of non-payers (free riders) is feasible You use horizontal addition to derive the market (society’s) demand schedule Public goods- non-rival and exclusion of non-payers is difficult and costly II. Positive Externalities (or external benefits) revisited Education is a good that generates a positive external benefits such as better healthcare and overall knowledge. When drawing a diagram to show this you will have one supply curve that goes up like it normally would that will be labeled the sum of Marginal Cost (from the individual firms) Then you will have a private demand schedule drawn just like normal, but then, to the right of the private demand you draw the external demand curve. Where the external demand curve meets the x axis you draw a dotted line up and by vertical summation draw a demand curve on top of private demand that will equal private demand and external demand. This will be the demand of society. Note: External Demand is not taken into account by the market because no one is willing to voluntarily pay for it. This demand is revealed by an imprecise political process. Q society> Q private-> Market “Failure” Policies will be put in place to increase Q of education like subsides and regulations 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.



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