ECON 10010 Chapter Notes - Chapter 5: Ronald Coase, Market Failure, Sulfur Dioxide
Document Summary
Week 7 - externalities, environmental policy and public. Chapter 5: externalities, environmental policy and public goods. It is just one example of an externality. Externality: benefit or cost that affects someone that is not directly involved in the production or consumption of a good or service. When there is an externality, government intervention can actually increase economic efficiency. When you consume a big mac, only you benefit. However, when you consume a college education, other people also benefit. College-educated people are less likely to commit crimes, they are better-informed voters, they recycle more, etc. This is a positive externality that comes with a college education. When you consume a big mac, the price you pay covers all the cost that mcdonalds incurs in producing it. However, when you buy electricity from a utility that burns coal and generates carbon dioxide, the price you pay does not necessarily cover the cost of the damage the carbon dioxide does to the environment.
