Externalities Flashcards
What is externality
Effect experienced by non-decision making agents resulting from The allocation generated by decision making agents
Social agents
All agents: private + external
Social efficiency
Maximization of The NB of The society as a whole - MBs = TBs -TCs
Private efficiency
Maximization of The NB of the private agents =
NBp= TBp-TCp
What will unregulated distributive mechanism pursue
Private efficiency
Where will society seek
Socially efficient allocations
Where will society seek
Socially efficient allocations
Which is higher of the a curves
Marginal social cost is higher Th on marginal private costs
Which is higher of the a curves
Marginal social cost is higher Th on marginal private costs
An externality on The cost side exists if,
Marginal social cost curve is higher than marginal private curve
An externality on the benefit side exists if,
Marginal social benefit is highs than marginal private benefit
An externality on the benefit side exists if,
Marginal social benefit is highs than marginal private benefit
When there is an ext cost and no ext benefit what does the private market decision making leads to
Leads to an over Er allocation compared to what would be socially efficient
In the case of external benefit what will private decision making do
It will under allocate relative to what would be socially efficient
In the case of external benefit what will private decision making do
It will under allocate relative to what would be socially efficient
