(BTY)+Chapter+10

 =Chapter 10: Externalities  = 

//Externality//: the effect on the side when market affects each person rather than buyers and sellers of that market      ==<span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Welfare Economic: A Recap   == <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> ==<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; color: rgb(239, 129, 72);">Negative Externalities  == <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> >>  <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> ==<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; color: rgb(236, 34, 34);">Positive Externalities  == <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">media type="youtube" key="Jax-ZyL7DkI" height="344" width="425" [|http://kr.youtube.com/watch?v=Jax-ZyL7DkI&eurl=]
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">Externality may cause markets to fail (ex. Failure in maximizing total surplus) -> become inefficient
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">The effect on the well-being an observer depending on certain actions
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">The total and the maximum benefit in the marketplace that buyers and sellers can develop from the market.
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Market failures are always there in any situations
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">Demand curve: the value to consumers measured by price of willingness to pay
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Supply curve: the cost of producing the product
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Qmarket: maximizes the total of consumer and producer surplus.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">Unpaid costs that are entailed on individuals. The individuals who aren’t really involved in neither production nor consumption of goods
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Producing and consuming goods generates the costs to other uncompensated people.
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">over producing the product than the product is actually desirable
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Internalizing the externality: incentives that can be changed for buyers and sellers. The customers take the account from the external result.
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Example: Automobile exhaust, cigarette smoking
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">[[image:smoking.jpg]][[image:smoking.jpg]][[image:smoking.jpg]][[image:smoking-2.jpg width="800" height="600"]]
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">when externality benefits
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">Producing and consuming goods generates the costs to other paid people.
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">producing less amount of product than it is actually desirable
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">government subsidizes goods with positive externality
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">social value > private value,
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">therefore Qoptimum: is greater than equilibrium point.
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Example: Immunizations, Restored historic buildings

<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> ==**<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; color: rgb(236, 39, 39);">Private Solutions to Externalities  **== <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> ===//<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; color: rgb(239, 26, 26);">Coase Theorem  //=== <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">: efficiency in economics of economic allocation, as well as solutions of externalities. <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">-when trade in externality, bargain is efficient. <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;">-private bargaining may internalize outer effects. <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="color: rgb(201, 19, 19);"> ===<span style="color: rgb(201, 19, 19);">//<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Why Private Solutions do not always Work  // === <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> ==**<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif; color: rgb(251, 50, 50);">Public Policies toward Externalities  **== <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="color: rgb(200, 14, 14);"> ===<span style="color: rgb(200, 14, 14);">//<span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">command and control policy: Regulation  // === <span style="color: rgb(200, 14, 14);"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">//**Corrective Tax**//: taxing to decrease the amount of private decision makers with negative externality. <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"> <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"> Summary Externality: the effect on the side when market affects each person rather than buyers and sellers of that market. It can change the market depending on whether it’s positive or negative. It causes market’s inefficiency. Government tries to eliminate them through policies like the command and control policy.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">Although externality causes market’s inefficiency, government service is not necessary to fix externalities.
 * <span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Developing private solutions: -moral codes, -charitable organizations –incorporating variety of businesses –agreements between groups
 * <span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">In the real world, bargaining only works sometimes.
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">//**Transaction costs**//: cost earned during making economic exchange, in other words, through bargain.
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">prohibit certain activities
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Ex. Requirements on pollution production limitation by Environmental Protection Agency
 * <span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;"><span style="font-family: 'Lucida Console',Monaco,monospace;">require certain activities
 * <span style="font-size: 12pt; font-family: 'Times New Roman','serif';"><span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Ex. All students should be immunized
 * <span style="font-family: 'Lucida Console',Monaco,monospace;"><span style="font-family: 'Trebuchet MS',Helvetica,sans-serif;">Government internalize externality by taxes and subsidies with social efficiency

Question: 1. What can externality cause? 2. What are the two types of externalities? 3. Why can't coase theorem work?

Answer: 1. Externalities may cause market failure and become inefficient 2. There are positive and negative externalities 3. Coase theorem might not work because private cost is too high

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