EC120 Chapter Notes - Chapter 10: Economic Surplus, Coase Theorem, Sydney 500
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EC120 Full Course Notes
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One of the principles from chapter 1: markets are usually a good way to organize economic activity. In absence of market failures, the competitive market outcome is ef cient, maximizes consumer + producer surplus. Market failure: a situation in which the market, on its own, fails to allocate resources ef ciently. Externality: the uncompensated impact of one person"s actions on the well-being of a bystander. Externalities can be negative or positive, depending on whether the impact on bystander is adverse or bene cial. Self-interested buyers and sellers neglect the external costs or bene ts of their actions, so the market outcome is not ef cient. Another principle from chapter 1: governments can sometimes improve market outcomes. In presence of externalities, public policy can improve ef ciency. Industrial policy: government intervention in the economy that aims to promote technology- enhancing industries) Late-night stereo blasting from the dorm room next to yours. Health risk to others from second-hand smoke.
