ECON 120
Wednesday, November 27, 2019
Lecture Notes
Detrimental Negative
Externality: MSC = MPC + incidental cost (Too much Q, fix by tax output, cap,
or trade)
Beneficial Positive
Externality: MSB = MPB + incidental benefit (Too little Q, subsidize output)
Excludability: You do not
pay :
- You do not get that unit
of the commodity.
- “Free-rider problem”
(non-excludable)
- Business would not
produce the commodity (non-excludable)
- Not enough output (maybe
zero) of the commodity (non-excludable)
Depletion: You get a unit
of the commodity -> no one else can get it -> you use it up.
Would not stop a firm from
producing it.
MC = zero, Price ought to
be zero
Government -> Private
Goods (inefficient)
U.S. Post Office
Postal Service
CTA
Trash Collecting
How come private goods
become public goods?
1. Voluntarism too little.
2. An indirect way of profit.
- An indirect way of profit:
advertisements, use and selling information
Force private production
of public good: (e.g., K-12 a positive externality)