CHAPTWR 11 Flashcards
Social costs formula
= private (opportunity) costs +external (opportunity) costs
Social benefits formula
= private benefits + external benefits
When do externalities occur
When clear property rights are missing
What happens when externalities exist
Prices do not reflect all social costs and benefits
Markets fail to be Efficient
Efficient pollution
Balances additional environmental benefits of lower pollution with the additional opportunity costs of reduced living standards
Smart choices
MSc = Msb
Marginal social cost
Marginal private cost plus marginal external cost
Msc = marginal private cost directly paid by producers (MC)
+ marginal external cost imposed on others
Marginal social benefit
Marginal private benefit plus marginal external benefit
Msb = marginal private benefit directly received by consumers (MB)
+
Marginal external benefit employed by others
Government remedy market failures
Create social property rights to the environment
Making polluting illegal
Penalizing polluters
