ECO101H1 Lecture Notes - Lecture 11: Economic Equilibrium, Allocative Efficiency, Social Cost
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ECO101H1 Full Course Notes
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Externalities: overview, pollution: negative externality of production. 2. 4 emissions charge (tax) to achieve efficiency: alcohol: negative consumption externality, pollution abatement: economic perspective. Social value = private value + externality (social value is the same as social benefit: there may be an externality in the production of a good [example: pollution] or in the consumption of a good [example: alcohol] Assumptions: the market for lumber is perfectly competitive. Lumber mills dump toxins into adjoining lakes, thereby reducing the recreational value of the lakes. Lumber mills are not required to compensate users of the lakes (or cottage owners) for the decline in recreational quality of the lakes. Questions: will the price paid by consumer for lumber be. 1: the cost of the pollution (toxins) is not reflected in the market price of lumber, no. Externalities may be positive [benefit third parties] or negative [harm third parties] To produce aluminum, firms generate smoke, which adversely affects health and the quality of the environment.
