Externalities: There’s No Use Crying Over

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Description: Externalities: Theres No Use Crying Over Spillovers Note: On slides 3, 5, 7, 9 in presentation mode students may slide the graph pieces on a separate monitor in the normaledit view. Supply Demand Graph Quantity Price Supply Demand P Q

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slide1. Externalities: There’s No Use Crying Over Spillovers Note: On slides 3, 5, 7, & 9 in presentation mode students may slide the graph pieces on a separate monitor in the normal/edit view.<br>
slide2. Supply & Demand Graph Quantity Price Supply Demand P Q<br>
slide3. Marginal Benefits & Costs Quantity Price Supply Demand P Q = Marginal Private Cost (MPC) = Marginal Private Benefit (MPB) = Marginal Social Cost (MSC) = Marginal Social Benefit (MSB)<br>
slide4. Negative Production Externality Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS GRAPH PIECES Marginal external cost<br>
slide5. Negative Production Externality—Answer Key Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS TAKEAWAYS
Third party is hurt by production
Private costs are less than what’s incurred by the society
MPC < MSC at market equilibrium quantity, QM
Society wants LESS quantity to be exchanged, QS < QM Marginal external cost<br>
slide6. Negative Consumption Externality Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS GRAPH PIECES Marginal external Benefit<br>
slide7. Negative Consumption Externality—Answer Key Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS TAKEAWAYS
3rd party is hurt by consumption
Private benefits are more than how much society benefits
MPB > MSB at market equilibrium quantity, QM
The society doesn’t benefit as much
Society wants LESS to be exchanged, QS < QM Marginal external Benefit<br>
slide8. Positive Consumption Externality Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS GRAPH PIECES Marginal external benefit<br>
slide9. Positive Consumption Externality—Answer Key Quantity Price PM QM Marginal Social Cost (MSC) Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Demand = Marginal Social Benefit (MSB) QS PS TAKEAWAYS
3rd party is helped by consumption
Private benefits are less than how much society benefits
MPB < MSB at market equilibrium quantity, QM
Society wants MORE to be exchanged, QS > QM Marginal external benefit<br>
slide10. Positive Production Externality Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS GRAPH PIECES Marginal external Cost<br>
slide11. Positive Production Externality—Answer Key Quantity Price PM QM Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) QS PS TAKEAWAYS
3rd party is helped by production
Private costs are more than what’s incurred by the society MPC > MSC at market equilibrium quantity, QM
Society wants MORE to be exchanged, QS > QM Marginal external Cost<br>
slide12. Externality Examples Example 1 Example 2 Example 3 Example 4 © santypan / iStock / Getty Images Plus https://www.loc.gov/pictures/item/98507705/ © gilaxia / E+ / Getty Images © Gudella / iStock / Thinkstock<br>
slide13. Negative Production Externality Quantity Price $8 600 Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) 500 $10 $12<br>
slide14. Positive Production Externality Quantity Price $400 10,000 Marginal Social Cost (MSC) Demand = Marginal Private Benefit (MPB) DWL Supply = Marginal Private Cost (MPC) Marginal Social Benefit (MSB) 15,000 $250 $100<br>