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Ebook Foundations of microeconomics (6th edition): Part 2

(BQ) Part 2 book "Foundations of microeconomics" has contents: Externalities, public goods and common resources, markets with private information, consumer choice and demand, production and cost, perfect competition, monopoly, monopolistic competition, oligopoly, markets for factors of production, economic inequality. | www.downloadslide.com How can we limit climate change? Externalities When you have completed your study of this chapter, you will be able to 10 CHAPTER CHECKLIST 1 Explain why negative externalities lead to inefficient overproduction and how property rights, pollution charges, and taxes can achieve a more efficient outcome. 2 Explain why positive externalities lead to inefficient underproduction and how public provision, subsidies, and vouchers can achieve a more efficient outcome. 241 www.downloadslide.com 242 Part 4 • MARKET FAILURE AND PUBLIC POLICY EXTERNALITIES IN OUR DAILY LIVES Externality A cost or a benefit that arises from production and that falls on someone other than the producer; or a cost or benefit that arises from consumption and that falls on someone other than the consumer. Negative externality A production or consumption activity that creates an external cost. Positive externality A production or consumption activity that creates an external benefit. An externality is a cost or a benefit that arises from production and that falls on someone other than the producer or a cost or a benefit that arises from consumption and that falls on someone other than the consumer. Before we embark on the two main tasks of this chapter, we’re going to review the range of externalities, classify them, and give some everyday examples. First, an externality can arise from either a production activity or a consumption activity. Second, it can be either a negative externality, which imposes an external cost, or a positive externality, which provides an external benefit. So there are four types of externalities: • • • • Negative production externalities Positive production externalities Negative consumption externalities Positive consumption externalities Negative Production Externalities When the U.S. Open tennis tournament is being played at Flushing Meadows, players, spectators, and television viewers around the world share a negative production externality .