PPT-Coase Theorem Negative Externalities

Consider the polluting factory the cost of the smoke and pollution to residents nearby is external to the factory Q P P m Private Marginal Cost Total Marginal Costs Q Q Too Much Pigouvian analysis. Yale Braunstein. March 2011. Quick intro to “Consumers Surplus”. Actually, the sum of CS & PS. Consumers gain from price decreases. PS = Profit. Monopoly works by restricting output & raining price, therefore results in “deadweight welfare loss”. Varian, Chapter 33. Types of externalities. Consumption externalities. Consumption of a good by agent . A. has a direct impact on agent . B. ’s utility. E.g., smoking, loud music, tidy garden, etc.. 05. McGraw-Hill/Irwin. Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.. Market Failures. Market fails to produce the right amount of the product. Resources may be:. Over-allocated. Externalities. Essential Questions. Why are markets inefficient in the presence of positive and negative externalities?. How do we identify the area of efficiency loss (deadweight loss) when externalities are present?. Ian . Parry. Fiscal Affairs Department, IMF . Disclaimer: The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management.. 2. Carbon. F*** you!. - Guns N’ Roses. Externalities. An . externality. is an uncompensated cost or benefit that the decision-maker imposes on others.. An . external benefit. or . positive externality. is a benefit that comes to individuals other than the decision-maker, for which the decision-maker is not compensated.. Divergence. In calculus, the divergence is used to measure the magnitude of a vector field’s source or sink at a given point. Thus it represents the volume density of the outward flux of a vector field . Competing standards (I)…. Competing standards (. II)…. Definition. . “. A . network externality exists when adoption is characterized by complementarily in consumption or . production”. . . costs . received by the producers and consumers involved in an exchange. . A kind of . market . failure . occurs . when market . prices . DO NOT reflect . all the costs and all the benefits . involved.. Market failure. is a concept within economic theory where the allocation of goods and services by a . free market. is not efficient. (less than optimum allocation of resources). Causes of Market Failure. The VCR. DVD players. Definition. . A . network externality exists when adoption is characterized by complementarily in consumption or production. . . Tirole. , J. 1988. Theory of Industrial Organization. Cambridge, MA: MIT Press: . What is an externality?. the uncompensated impact of one person's actions on the well-being of a bystander (or 3. rd. party). Two Types of Externalities. Negative Externality. If the impact on the bystander is . Externality. An unintended cost or benefit created for a third party as a result of a transaction. . This cost or benefit is unintended and uncompensated. . Positive Externality. Benefit or positive externality Examples: honey production, vaccinations . Laura Jackson Young. Market Efficiency. ‘Markets are usually a good way to organize economic activity’. In absence of market failures. , the competitive market outcome is efficient. Maximizes total surplus.