1、R. GLENNHUBBARDANTHONY PATRICKOBRIENFIFTH EDITION 2015 Pearson Education, Inc. 2 2015 Pearson Education, Inc.Chapter Outline andLearning Objectives5.1 Externalities and Economic Efficiency5.2 Private Solutions to Externalities: The Coase Theorem5.3 Government Policies to Deal with Externalities5.4 F
2、our Categories of GoodsCHAPTER5 Externalities, Environmental Policy, and Public Goods3 2015 Pearson Education, Inc.What Is the “Best” Level of Pollution?Is there a way to know what is the optimal level of pollution for a society?“No pollution” may be good for the environment, but is probably not goo
3、d for peoplemost modern conveniences in some way result in pollution.But unrestrained pollution is probably not optimal either.Economics offers some ideas for how to decide on how much pollution to allow.LEARNING OBJECTIVE4 2015 Pearson Education, Inc.Externalities and Economic Efficiency5.1Identify
4、 examples of positive and negative externalities and use graphs to show how externalities affect economic efficiency.5 2015 Pearson Education, Inc.Pollution is an ExternalityNo one sets out to create pollution; pollution is an unintended by-product of various activities.Pollution would not be a prob
5、lem if pollution only affected the person who created it; people would create pollution only until its marginal cost equaled its marginal benefit.But pollution is an example of an externality: a benefit or cost that affects someone who is not directly involved in the production or consumption of a g
6、ood or service. Think of an externality like a side-effect.6 2015 Pearson Education, Inc.Electricity ProductionElectricity production is an incredibly important industry for a modern economy.Consider the market for electricity. It consists of: Sellers, who face increasing marginal costs to produce e
7、lectricity Buyers, who face decreasing marginal benefits of additional electricityThe actions of these groups generate market supply and demand curves for electricity.7 2015 Pearson Education, Inc.Cost of Electricity ProductionWhen firms produce electricity, they have costs of production: Buildings
8、Equipment Fuel Labor, etc.Those firms make their decisions about how much to produce based on these private costs.But the social cost is higher: the cost to society includes both the private cost and the external cost of the pollution.8 2015 Pearson Education, Inc.Externalities in the Electricity Pr
9、oduction MarketSupply curve S1 represents just the marginal private cost that the electricity producer has to pay. Supply curve S2 represents the marginal social cost, which includes the costs to those affected by pollution.The optimal level of production for society is QEfficient; at this quantity,
10、 the marginal cost to society is just equal to the marginal benefit.The effect of pollution on economic efficiencyFigure 5.19 2015 Pearson Education, Inc.Inefficiency Due to Negative ExternalitiesHowever the market equilibrium results from the decisions of producers, who see their cost of production
11、 given by S1.Price (PMarket) is “too low” and quantity (QMarket) is “too high”: the cost to society of the additional electricity exceeds its benefit to society.Deadweight loss results.When there is a negative externality in producing a good or service, too much of the good or service will be produc
12、ed at market equilibrium.The effect of pollution on economic efficiencyFigure 5.110 2015 Pearson Education, Inc.ExternalitiesPollution is an example of a negative externality in production.Negative externalities might result from consumption.Example: cigarette smokeExternalities might also be positi
13、ve, with social benefits exceeding private benefits.Example: college educationPrivate benefit: the benefit received by the consumer of a good or service.Social benefit: The total benefit from consuming a good or service including both the private benefit and any external benefit.Positive externalities result in underproduction relative to efficiency.
