上海财大经济学课件10Externalities.pptVIP

Question: Mankiw-Ch10. Externalities Explain completely concept of externality? What is solution to externalities, which contains private Solutions to Externalities and Public Policy toward Externalities? * 4. The Economics of the public sector Chapter 10. Externalities 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. 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. 10.1 Externalities and Market Inefficiency When the impact on the bystander is adverse, the externality is called a negative externality. When the impact on the bystander is beneficial, the externality is called a positive externality. 10.1 Externalities and Market Inefficiency Negative Externalities Automobile exhaust Cigarette smoking Barking dogs (loud pets) Loud stereos in an apartment building. Externalities and Market Inefficiency Positive Externalities Immunizations 免疫 Restored historic buildings Research into new technologies(because it creates knowledge that other people can use.) Externalities and Market Inefficiency Figure10-1 The Market for Aluminum. The demand curve reflects the value to buyers, and the supply curve reflects the costs of sellers. The equilibrium quantity, QMARKET, maximizes the total value to buyers minus the total costs of sellers. In the absence of externalities, therefore, the market equilibrium is efficient. Price of Aluminum Quantity of Aluminum Supply (private cost) QMARKET 0 Equilibrium Demand (private value) Negative Externalities lead markets to produce a larg