ECON 221 1st Edition Lecture 13 Outline of Last Lecture I. Deadweight LossII. Maximizing DWLIII. SubsidiesOutline of Current LectureI. Externalitiesa. External Costsb. External BenefitsCurrent LectureChapter 10: ExternalitiesExternalities:- Equilibrium in a free market yields a number of important results: o Goods must be produced at the lowest possible cost. o Goods must satisfy the highest valued demands. o Total surplus (consumer plus producer surplus) is maximized. - For most goods all the significant costs and benefits flow directly to the consumers and producers trading in the market creating the results above. External Costs:- Negative externalitiesThese 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.- When external costs are ignored, the market quantity is greater than the socially efficient level, and social surplus is reduced. - Reducing output below the market quantity increases social surplus when the social cost exceeds buyers’ private benefit. - Thus, to maximize social surplus output should be reduced to the socially efficient level. External Benefits:- Positive externalities- Ex: vaccination - When external benefits are ignored, the market quantity is less than the socially efficient level and social surplus is reduced. - Increasing output above the market quantity increases social surplus when the social value exceeds sellers’ private cost. - Thus, to maximize social surplus output should be expanded to the socially efficient
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