EC120 Study Guide - Final Guide: Salad Bar, Eurocopter Ec120 Colibri, Ecotax
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EC120 Full Course Notes
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One type of market failure: externality the uncompensated impact of a person"s actions on the well-being of a bystander. Internalizing the externality: altering incentives so that people take account of the external effects of their actions. In our example, the /gallon tax on sellers makes sellers" costs = social costs. When market participants must pay social costs, market equilibrium = social optimum. Imposing the tax on buyers would achieve the same outcome; market q would equal optimal q) Being vaccinated against contagious diseases protects not only you, but people who visit the salad bar after you. People going to college raise the population"s education level, which reduces crime and improves government. In the presence of a positive externality, the social value of a good includes: private value the direct value to buyers, external benefit the value of the positive impact on bystanders.
