昆曼微观经济学chapter.pptVIP

10 Externalities Learning Objectives Learn the nature of an externality See why externalities can make market outcomes inefficient Examine how people can sometimes solve the problem of externalities on their own Consider by private solutions to externalities sometimes do not work Examine the various government policies aimed at solving the problem of externalities EXTERNALITIES AND MARKET INEFFICIENCY An externality refers to the uncompensated impact of one person’s actions on the well-being of a bystander. Externalities cause markets to be inefficient, and thus fail to maximize total surplus. An externality arises... . . . when a person engages in an activity that influences the well-being of a bystander and yet neither pays nor receives any compensation for that effect. EXTERNALITIES AND MARKET INEFFICIENCY When the impact on the bystander is adverse, the externality is called a negative externality. Automobile exhaust Cigarette smoking Barking dogs (loud pets) Loud stereos in an apartment building EXTERNALITIES AND MARKET INEFFICIENCY When the impact on the bystander is beneficial, the externality is called a positive externality. Immunizations Restored historic buildings Research into new technologies EXTERNALITIES AND MARKET INEFFICIENCY Negative externalities lead markets to produce a larger quantity than is socially desirable. Positive externalities lead markets to produce a larger quantity than is socially desirable. Figure 1 Welfare Economics Recap: The Market for Aluminum Welfare Economics: A Recap The Market for Aluminum Market equilibrium is efficient--the sum of producer and consumer surplus is maximized. If aluminum factories emit pollution, then the cost to society of producing aluminum is larger than just the cost to aluminum producers. For each unit of aluminum produced, the social cost includes the private costs of the producers plus the cost to bystanders adversely affected by the pollution. Figure 2 Pollution and the Social Optimum Negat