Economics 1021A/B Lecture Notes - Lecture 23: Arthur Cecil Pigou, Mortgage Loan, Pigovian Tax

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Nicholas Kahnert

Document Summary

Quiz friday chapter 14, 15, 16: two questions on each chapter. An externality is a cost or benefit that arises from an economic transaction, that falls on (is borne by) someone other than the person or the firm who is involved in the transaction (choosing the action). A negative externality imposes a cost and a positive externality creates a benefit. Burning coal to generate electricity emits carbon dioxide. Logging and clearing forests destroys the habitat of wildlife and adds carbon dioxide to the atmosphere. Other examples: noise from aircraft and trucks, pollution of rivers and lakes, and air pollution in major cities from auto exhaust. Positive production externalities are less common than negative externalities. Two examples arise in honey and fruit production. By locating honeybees next to a fruit orchard, fruit growers gets an external benefit from the bees, which pollinate the fruit orchards and boost fruit output. Honey producers get an external benefit from the orchards.