推荐微观经济学Microeconomics英文课件PPT 34 Externalities.pptxVIP

Lec 21Chapter Thirty-FourExternalitiesWhen the market works as it should…Recall: Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market. But market failures can still happen.ExternalitiesAn externality is a cost or a benefit imposed upon someone by actions taken by others. The cost or benefit is thus generated externally to that somebody.An externally imposed benefit is a positive externality.An externally imposed cost is a negative externality.EXTERNALITIES AND MARKET INEFFICIENCY Negative ExternalitiesAutomobile exhaustCigarette smokingBarking dogs (loud pets)Loud stereos in an apartment buildingEXTERNALITIES AND MARKET INEFFICIENCY Positive ExternalitiesImmunizationsRestored historic buildingsResearch into new technologiesExamples of Negative ExternalitiesAir pollution.Water pollution.Loud parties next door.Traffic congestion.Second-hand cigarette smoke.Increased insurance premiums due to alcohol or tobacco consumption.Examples of Positive ExternalitiesA well-maintained property next door that raises the market value of your property.A pleasant cologne or scent worn by the person seated next to you.Improved driving habits that reduce accident risks.A scientific advance.Externalities and EfficiencyCrucially, an externality impacts a third party; i.e. somebody who is not a participant in the activity that produces the external cost or benefit.Externalities and EfficiencyExternalities cause Pareto inefficiency; typicallytoo much scarce resource is allocated to an activity which causes a negative externalitytoo little resource is allocated to an activity which causes a positive externality.Externalities and Property RightsAn externality will viewed as a purely public commodity.A commodity is purely public ifit is consumed by everyone (nonexcludability), andeverybody consumes the entire amount of the commodity (nonrivalry in consumption). E.g. a broadca