ECO101H1 Lecture Notes - Lecture 1: Pigovian Tax, Contract, Coase Theorem

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: Jessica Burley

Document Summary

Governments can add as regulators in industry: regulate monopolies to reach efficient targets in markets. Market failures occur when allocative efficiency is not achieved: total surplus is not maximized, deadweight loss occurs, externalities and public goods are two examples of market failures. Allocative efficiency: marginal cost of production equals price/marginal value to buyers: total surplus is maximized at the level, no deadweight loss occurs, mc (supply) = mb (demand), dwl = 0. Externalities can also provide/negative external benefits: private marginal benefit =/= social marginal benefit, private benefit faced by private decision maker (consumer, social benefit faced by private decision maker, plus benefit to society. Negative production externality: social marginal cost lies above private marginal cost (msc>mpc, quantity too high, price too low, pollution. Positive production externality: social marginal cost lies below private marginal cost (msc