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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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>
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Supply & Demand Graph Quantity Price Supply Demand P Q<br>
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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>
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>
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>
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>
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>