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1、Externalities1©2012CengageLearning.AllRightsReserved.Maynotbecopied,scanned,orduplicated,inwholeorinpart,exceptforuseaspermittedinalicensedistributedwithacertainproductorserviceorotherwiseonapassword-protectedwebsiteforclassroomuse.ExternalitiesExternalityTheun
2、compensatedimpactofoneperson’sactionsonthewell-beingofabystanderMarketfailureNegativeexternalityImpactonthebystanderisadversePositiveexternalityImpactonthebystanderisbeneficial2©2012CengageLearning.AllRightsReserved.Maynotbecopied,scanned,orduplicated,inwholeor
3、inpart,exceptforuseaspermittedinalicensedistributedwithacertainproductorserviceorotherwiseonapassword-protectedwebsiteforclassroomuse.ExternalitiesMarketequilibriumInefficientallocationofresourcesBuyersandsellersneglecttheexternaleffectsoftheiractionswhendecidi
4、nghowmuchtodemandorsupplyFailstomaximizethetotalbenefittosocietyasawholeGovernmentProtectstheinterestsofbystanders3©2012CengageLearning.AllRightsReserved.Maynotbecopied,scanned,orduplicated,inwholeorinpart,exceptforuseaspermittedinalicensedistributedwithacertai
5、nproductorserviceorotherwiseonapassword-protectedwebsiteforclassroomuse.Externalities&MarketInefficiencyWelfareeconomics:arecapDemandcurve–valuetoconsumersPricestheyarewillingtopaySupplycurve–costtosuppliersEquilibriumquantityandpriceEfficientMaximizessumofprod
6、ucerandconsumersurplus4©2012CengageLearning.AllRightsReserved.Maynotbecopied,scanned,orduplicated,inwholeorinpart,exceptforuseaspermittedinalicensedistributedwithacertainproductorserviceorotherwiseonapassword-protectedwebsiteforclassroomuse.Figure15©2012Cengage
7、Learning.AllRightsReserved.Maynotbecopied,scanned,orduplicated,inwholeorinpart,exceptforuseaspermittedinalicensedistributedwithacertainproductorserviceorotherwiseonapassword-protectedwebsiteforclassroomuse.TheMarketforAluminumPriceofAluminumQuantityofAluminum0D
8、emand(privatevalue)Supply(privatecost)Thedemandcurvereflectsthevaluetobuyers,andthesupplycurvereflectsthecostsofsellers.Theequilibriumquantity,QMARKET,maximizesthetotalvalue
