andPublicGoods(微观经济学-华侨大学,JeffCaldwe.pptxVIP

Chapter 18Externalities and Public Goods1Chapter 1 Topics to be DiscussedExternalitiesWays of Correcting Market FailureExternalities and Property RightsCommon Property Resources2Chapter 1 Topics to be DiscussedPublic GoodsPrivate Preferences for Public Goods3Chapter 1 ExternalitiesNegativeAction by one party imposes a cost on another partyPositiveAction by one party benefits another party4Chapter 1 External CostScenarioSteel plant dumping waste in a riverThe entire steel market effluent can be reduced by lowering output (fixed proportions production function)5Chapter 1 External CostScenarioMarginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production.Marginal Social Cost (MSC) is MC plus MEC.6Chapter 1 MCS = MCIDP1Aggregate social cost ofnegativeexternalityP1q1Q1MSCMSCIWhen there are negativeexternalities, the marginalsocial cost MSC is higherthan the marginal cost.External CostsFirm outputPriceIndustry outputPriceMECMECIThe differences isthe marginal externalcost MEC.q*P*Q*The industry competitiveoutput is Q1 while the efficientlevel is Q*. The profit maximizing firmproduces at q1 while the efficient output level is q*. 7Chapter 1 External CostNegative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.8Chapter 1 ExternalitiesPositive Externalities and InefficiencyExternalities can also result in too little production, as can be shown in an example of home repair and landscaping.9Chapter 1 MCP1External BenefitsRepair LevelValueDIs research and development discouraged by positiveexternalities?q1MSBMEBWhen there are positiveexternalities (the benefitsof repairs to neighbors),marginal social benefitsMSB are higher thanmarginal benefits D.q*P*A self-interested home ownerinvests q1 in repairs. Theefficient level of repairsq* is higher. The higher priceP1 discourages repair.10Chapter 1 Ways of Correcting Market FailureAssumption: The market failure is pollutionFixed