ECON 203 1nd Edition Lecture 21Outline of Last Lecture I. Price Discriminationa. Price searchersb. Definition of price discriminationc. 1st degreed. 2nd degreee. 3rd degreeOutline of Current LectureI. Externalitiesa. Positive externalityi. Examplesii. Solutionsb. Negative externalityi. Examplesii. SolutionsCurrent LectureI. Externalities- an externality is present whenever benefits go outside the transaction or costs that are born outside the transaction. a. Positive externality ( external benefit)- the benefits of consuming a good that accrue to others who are not the decision maker (i.e. benefits that result from a market transaction that go to someone outside the transaction-not the buyer or seller). Choices of others can generate benefits(happiness) for usi. Examples1. You neighbor re-paints his house. This raises the price of your house by increased curb appeal without you doing anything2. Someone blares music you like in public. You get to listen to music that makes you happy.3. Flu shots. A classmate gets a flu shot, which helps prevents the spread of the flu and decreases your chance of getting it. 4. Attending VCU creates educated, higher contributing citizens which benefits society as a whole, therefore the government subsidizes tuition costsThese 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.ii. The demand of a good in the private sector would have a lower price and quantity than that of a good with an external benefit. To increase the quantity of a good with an external benefit:1. Subsidize-reduces cost2. Regulate-force people to participate (write a law)3. Property rights- define what rights you have( very hard to do in this case)b. Negative externalities( external cost)-choices of others sometimes generates a cost for someone outside of the transactioni. Examples1. A drunk driver hits a car- those in the other car now have a cost of injury that they have to bare2. The apartment upstairs makes noise at late hours-you must put upwith this noise3. Pollution(air, water, noise)- you must live with this pollution whether you contribute to it or notii. External costs raises the cost per unit of a good. Solutions to this raise in price are1. Regulate/restrict behavior-EPA restricts pollution2. Tax
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