ECON 1125 Lecture Notes - Lecture 4: Npr, Ecotax, Economic Equilibrium
4 Apr 2016
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Chapter 4 market failure: public goods and externalities. When society does not produce goods and services efficiently. Market efficiency: mpb = mpc social efficiency: msb = msc. Some goods are classified as externalities if they involve a third party that is an innocent bystander! On my way to the train station each morning i walk by my neighbor"s beautiful garden. I get some benefit from this yet i do not offer to help pay for it. This means that the flower garden has some positive externalities attached to it: i gain a benefit without paying. Later on that walk i pass a small manufacturing plant that emits black smoke into the air that i have to breath. In this case, i"m incurring a cost breathing pollution and i"m not being compensated for that cost. This means that that plant has some negative externalities attached to it.
