平狄克微观经济学Externalities and Public Goods.ppt

?2005 Pearson Education, Inc. Chapter 18 Chapter 18 Externalities and Public Goods Topics to be Discussed Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources Public Goods Private Preferences for Public Goods Externalities Externalities arise between producers, between consumers, or between producers and consumers Externalities are the effects of production and consumption activities not directly reflected in the market They can be negative or positive Externalities Negative Action by one party imposes a cost on another party Plant dumps waste in a river, affecting those downstream The firm has no incentive to account for the external costs that it imposes on those downstream Externalities Positive Action by one party benefits another party Homeowner plants a beautiful garden where all the neighbors benefit from it Homeowner did not take their benefits into account when deciding to plant Negative Externalities and Inefficiency Scenario – plant dumping waste Marginal External Cost (MEC) is the increase in cost imposed on fishermen downstream for each level of production Marginal Social Cost (MSC) is MC plus MEC We can show the competitive market firm decision and the market demand and supply curves Negative Externalities and Inefficiency Assume the firm has a fixed proportions production function and cannot alter its input combinations The only way to reduce waste is to reduce output Price of steel and quantity of steel initially produced given by the intersection of supply and demand Negative Externalities and Inefficiency The MC curve for the firm is the marginal cost of production Firm maximizes profit by producing where MC equals price in a competitive firm As firm output increases, external costs on fishermen also increase, measured by the marginal external cost curve From a social point of view, the firm produces too much output External Costs External Costs External Cost Negative externalities encourage