ECON 1 Lecture Notes - Lecture 9: Social Cost, Coase Theorem, Externality
Document Summary
Eco 1 : introduction to economics- lecture 9:externalities. Externalities are the uncompensated impact of one"s actions by participating in the market. Negative externalities; ex: pollution from aluminum production. Externalities cause a societal cost to move. Socially optimum cost, the equilibrium between the social cost and the producers cost. In this case, a negative externality causes the societal cost to be lesser than the cost to producers. The societal cost also increases supply, above the societal cost. The socially optimum cost is greater than the market costs. Gives a benefit rather than a problem. Taking consideration of an externality is called internalizing the externality. Ex; the pollution from aluminum can be remedied by a tax on aluminum production. Two types of policies that a government can use. A command-and-control type of policy in which a government can require or forbid certain behavior. Ex; ban on dumping poisonous chemicals into a water supply. Governments can delegate regulation to an agency.
