1. Externalities and Public Policy
Lesson20
Sections 74, 75

2. Market Failure What is market failure?
Failure to set the correct price
Unintended consequences
Allocation of goods not efficient

3. Externalities Externalities External Cost: Negative Externality
External Benefit: Positive Externality

4. Private Solutions to Externalities
Internalize the Externalities
Coarse theorem
Private parties can reach a solution?
BBQ and loud music vs neighbor that can’t stand the music
Payment?
Transaction cost

5. The Economics of Pollution
Cost and Benefit of Pollution
Marginal Social Cost of Pollution
Marginal Social Benefit of Pollution
Socially Optimal Quantity of Pollution ?

6. Policies Toward Pollution
Environmental Standards
Emissions Tax
Tradable Permits

7. Production, Consumption, and Externalities
Private vs Social Benefits
Marginal Social Benefit
Marginal Personal Benefit
Marginal External Benefit
MSB=MPB+MEB
Private vs Social Costs
Marginal Social Cost
Marginal Personal Cost
Marginal External Cost
MSC=MPC+MEC
Pigouvian Subsidy
Pigouvian Tax
Technology Spillover
Network Externality
Who else is using it?