ECN 102 Lecture Notes - Lecture 26: Smog, Acid Rain, Deadweight Loss
Document Summary
Advance purchase restrictions: prices are lower for those who purchase well in advance or last minute. Volume discounts: prices are lower if you buy a large quantity. Two-part tariffs: flat fee upfront and then a per-unit fee on each item purchase. Note: government usually focuses on preventing deadweight loss, not preventing price discrimination because price discrimination can lead to a more efficient market. Externalities (spillovers): the impact on the third part (external to the transaction) of a transaction between two others. When individuals impose costs on or provide benefits for others, but don"t have an economic incentive to take those costs or benefits into account. Negative externality: side effect that imposes costs on others. Government intervention should be aimed at moving the market to the right quantity of the side effect. Positive externality: a side effect the generates benefits for others.