andPublicGoods微观经济学华侨大学JeffCaldwe讲义
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chapter_2The Basics of Supply and Demand(微观经济学-华侨大学,Jeff Caldwell)
Chapter 2: The Basics of Supply and Demand
Slide 8
Supply and Demand
Price ($ per unit)
Vertical axis measures price (P) received per unit in dollars
The Supply Curve Graphically
This price-quantity relationship can be shown by the equation:
QD QD(P)
Chapter 2: The Basics of Supply and Demand Slide 14
Supply and Demand
Price ($ per unit)
Mechanism:
Tendency in a free market for price to change until the market clears
Chapter 2: The Basics of Supply and Demand
Slide 20
The Market Mechanism
Slide 7
Chapter 2: The Basics of Supply and Demand
Supply and Demand
The Supply Curve
This
price-quantity relationship can be shown by the equation:
Qs QS ( P )
Slide 2
Chapter 2: The Basics of Supply and Demand
ofCompetitiveMarkets(微观经济学-华侨大学,Jeff
Price
10
7
5
Producer Surplus
Consumer Surplus
0
Chapter 1Consumer A
Consumer B
Q0
Consumer C
S
Between 0 and Q0 consumers A and B receive a net gain from buying the product-consumer surplus
(A - B) + (-A - C) = -B - C
The deadweight loss is the inefficiency of the price controls or the loss of the producer surplus exceeds the gain from consumer surplus.
the deadweight loss.
D
Q1
Q0
Q2
Quantity
7
Change in Consumer and Producer Surplus from Price Controls
Observations:
The total loss is equal to area B + C.
The total change in surplus =
Chapter 1
20
Welfare Loss When Price Is Held Below Market-Clearing Level
Price
B
P0
A
C
P1
Chapter 1
Q1
Q0
S
When price is regulated to be no higher than P1, the deadweight loss given by triangles B and C results.
forFactorInputs(微观经济学-华侨大学,JeffCaldw
3) The buyers and sellers of the factor of production are price takers
Chapter 14
Slide 3
Competitive Factor Markets
Demand for a Factor Input When Only One Input Is Variable
Question
What will happen to the value of MRPL when more workers are hired?
Chapter 14
Slide 9
Marginal evenue Product
Wages ($ per hour)
Competitive Output Market (P = MR)
Monopolistic Output Market
(P < MR)
Chapter 14
MRPL = MPLx P MRPL = MPL x MR
Hours of Work Slide 10
Competitive Factor Markets
Demand for a Factor Input When Only One Input Is Variable
Demand for a Factor Input When Only One Input Is Variable
Problem How much labor to hire
Chapter 14
Slide 6
Competitive Factor Markets
Demand for a Factor Input When Only One Input Is Variable
Chapter 14
Slide 3
Competitive Factor Markets
Demand for a Factor Input When Only One Input Is Variable
Question
What will happen to the value of MRPL when more workers are hired?
Chapter 14
Slide 9
Marginal evenue Product
Wages ($ per hour)
Competitive Output Market (P = MR)
Monopolistic Output Market
(P < MR)
Chapter 14
MRPL = MPLx P MRPL = MPL x MR
Hours of Work Slide 10
Competitive Factor Markets
Demand for a Factor Input When Only One Input Is Variable
Demand for a Factor Input When Only One Input Is Variable
Problem How much labor to hire
Chapter 14
Slide 6
Competitive Factor Markets
Demand for a Factor Input When Only One Input Is Variable
第一讲导言(高鸿业微观经济学第四版华侨大学郑文智)
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
二、拓展与完善
从消费者行为是否符合效用最大化或偏好最大化开始，
相继出现了显示偏好理论、时间偏好与跨时期选择理论、
风险条件下的选择理论、以及选择理论在家庭、婚姻、罪
与罚、政治市场等领域的广泛应用。
从考察企业行为是否符合利润最大化或成本最小化入
手，经济学家们发展了各种企业理论。如：企业理论，我
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
经济学的十大原理
原理一：人们面临权衡关系 原理二：某种东西的成本是为了得到它而放弃的东西 原理三：理性人考虑边际量 原理四：人们会对激励作出反映 原理五：贸易能使每个人状况更好 原理六：市场通常是组织经济活动的一种好方法 原理七：政府有时可以改善市场结果 原理八：一国的生活水平取决于它生产物品与劳务的能力 原理九：当政府发行了过多货币时物价上升 原理十：社会面临通货膨胀与失业之间的短期交替关系
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
经济学学科结构
入门：
经济学原理
理论基础： 微观经济学、宏观经济学
分析方法: 计量经济学、数理经济学
应用学科： 共经济学（公共财政）、
货币金融学、制度经济学、农业经济学、
发展经济学、劳动经济学、环境经济学、
了解经济学的研究对象。
▪ 基本概念 ▪ 相关知识 ▪ 发展史
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
经济学的产生：
由于人类欲望是无穷，而资源是有限的， 于是就存在着： （1）生产什么(what) （2）生产多少(how many) （3）如何生产(how) （4）为谁生产(for whom) （5）何时生产(when)等问题。为了解决以上 问题，就产生了经济学。
二、拓展与完善
从消费者行为是否符合效用最大化或偏好最大化开始，
相继出现了显示偏好理论、时间偏好与跨时期选择理论、
风险条件下的选择理论、以及选择理论在家庭、婚姻、罪
与罚、政治市场等领域的广泛应用。
从考察企业行为是否符合利润最大化或成本最小化入
手，经济学家们发展了各种企业理论。如：企业理论，我
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
经济学的十大原理
原理一：人们面临权衡关系 原理二：某种东西的成本是为了得到它而放弃的东西 原理三：理性人考虑边际量 原理四：人们会对激励作出反映 原理五：贸易能使每个人状况更好 原理六：市场通常是组织经济活动的一种好方法 原理七：政府有时可以改善市场结果 原理八：一国的生活水平取决于它生产物品与劳务的能力 原理九：当政府发行了过多货币时物价上升 原理十：社会面临通货膨胀与失业之间的短期交替关系
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
经济学学科结构
入门：
经济学原理
理论基础： 微观经济学、宏观经济学
分析方法: 计量经济学、数理经济学
应用学科： 共经济学（公共财政）、
货币金融学、制度经济学、农业经济学、
发展经济学、劳动经济学、环境经济学、
了解经济学的研究对象。
▪ 基本概念 ▪ 相关知识 ▪ 发展史
第一讲导言(高鸿业微观经济学第四 版华侨大学郑文智)
经济学的产生：
由于人类欲望是无穷，而资源是有限的， 于是就存在着： （1）生产什么(what) （2）生产多少(how many) （3）如何生产(how) （4）为谁生产(for whom) （5）何时生产(when)等问题。为了解决以上 问题，就产生了经济学。
11public_goods 曼昆 微观经济学课件
Copyright © 2004 South-Western
The Difficult Job of Cost-Benefit Analysis
• Cost benefit analysis refers to a study that compares the costs and benefits to society of providing a public good. • In order to decide whether to provide a public good or not, the total benefits of all those who use the good must be compared to the costs of providing and maintaining the public good.
• Are excludable but not rival.
Copyright © 2004 South-Western
Figure 1 Four Types of Goods
Rival? Yes Private Goods Yes No Natural Monopolies
• Ice-cream cones • Clothing • Congested toll roads
Copyright © 2004 South-Western
“The best things in life are free. . .”
• When a good does not have a price attached to it, private markets cannot ensure that the good is produced and consumed in the proper amounts.
chapter_3ConsumerBehavior(微观经济学-华侨大学,Jeff
Consumer Behavior
These two problems require an understanding of the economic theory of consumer behavior.
Consumer Behavior
There are three steps involved in the study of consumer behavior.
Consumer Behavior
When the food stamp program was established in the early 1960s, the designers had to determine to what extent the food stamps would provide people with more food and not just simply subsidize the food they would have bought anyway.
Chapter 3
Consumer Behavior
Topics to be Discussed
Consumer Preferences Budget Constraints Consumer Choice Revealed Preferences
Topics to be Discussed
Consumer Preferences
Market Baskets
Three Basic Assumptions 1) Preferences are complete. 2) Preferences are transitive. 3) Consumers always prefer more of any good to less.
andPublicGoods微观经济学 华侨大学
MC
Is research and development discouraged by positive externalities?
Chapter 18
q1 q*
Repair Level
Slide 10
Ways of Correcting Market Failure
? Assumption: The market failure is pollution
MSB are higher than marginal benefits D.
MEB
A self-interested home owner invests q1 in repairs. The efficient level of repairs
q* is higher. The higher price P1 discourages repair.
Chapter 18
Slide 9
External Benefits
Value MSB
D P1 P*
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
MECI
Q* Q1
D
Industry output
External Cost
? Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.
3) Profit maximizing output chosen
Is research and development discouraged by positive externalities?
Chapter 18
q1 q*
Repair Level
Slide 10
Ways of Correcting Market Failure
? Assumption: The market failure is pollution
MSB are higher than marginal benefits D.
MEB
A self-interested home owner invests q1 in repairs. The efficient level of repairs
q* is higher. The higher price P1 discourages repair.
Chapter 18
Slide 9
External Benefits
Value MSB
D P1 P*
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
MECI
Q* Q1
D
Industry output
External Cost
? Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.
3) Profit maximizing output chosen
andMarketDemand(微观经济学-华侨大学,JeffCaldw
4 10 16
Food (units per month)
Slide 13
Chapter 4
Slide 9
Effect of a Price Change
Price of Food
$2.00
When the price falls: Pf/Pc & MRS also fall
E
$1.00 $.50
•E: Pf/Pc = 2/2 = 1 = MRS
•G: Pf/Pc = 1/2 = .5 = MRS
1) The level of utility that can be attained changes as we move along the curve.
Chapter 4
Slide 8
Individual Demand
The Individual Demand Curve
Two Important Properties of Demand Curves
Price of
food
$1.00
An increase in income, from $10 to $20 to $30, with the prices fixed, shifts the consumer’s demand curve to the right.
E
G
H
Chapter 4
D3
D2 D1
$1.00 $.50
G Demand Curve H
4 12 20
Chapter 4
Food (units per month)
Slide 7
Individual Demand
The Individual Demand Curve
Monopsony(微观经济学-华侨大学,JeffCaldwell)
This can be seen graphically:
orMC MR
Chapter 1
Slide 12
Maximizing Profit When Marginal Revenue Equals Marginal Cost
The Monopolist’s Output Decision
At output levels below MR = MC the decrease in revenue is greater than the decrease in cost (MR > MC).
Chapter 1
Slide 6
Monopoly
The monopolist is the supply-side of the market and has complete control over the amount offered for sale.
Profits will be maximized at the level of output where marginal revenue equals marginal cost.
Chapter 1
Slide 11
Monopoly
ቤተ መጻሕፍቲ ባይዱ
Monopolist’s Output Decision
1) Profits maximized at the output level where MR = MC
2) Cost functions are the same
(Q)R(Q)C(Q) /QR/QC/Q0M CMR
Chapter 1
Slide 10
Monopoly
Observations 1) To increase sales the price must fall 2) MR < P 3) Compared to perfect competition
orMC MR
Chapter 1
Slide 12
Maximizing Profit When Marginal Revenue Equals Marginal Cost
The Monopolist’s Output Decision
At output levels below MR = MC the decrease in revenue is greater than the decrease in cost (MR > MC).
Chapter 1
Slide 6
Monopoly
The monopolist is the supply-side of the market and has complete control over the amount offered for sale.
Profits will be maximized at the level of output where marginal revenue equals marginal cost.
Chapter 1
Slide 11
Monopoly
ቤተ መጻሕፍቲ ባይዱ
Monopolist’s Output Decision
1) Profits maximized at the output level where MR = MC
2) Cost functions are the same
(Q)R(Q)C(Q) /QR/QC/Q0M CMR
Chapter 1
Slide 10
Monopoly
Observations 1) To increase sales the price must fall 2) MR < P 3) Compared to perfect competition
《微观经济学microeconomics》英文版全套课件(101页)
X RL {x R : xl 0 for l 1,..., L}
The economic constraint:
px p1x1 ... pL xL w
The Walrasian budget set (Definition 2.D.1)
Bp,w {x RL : px w}
or
u(x* ) xl
pl
px w
Solution: Walrasian demand function x*( p, w)
Utility Maximization -- Example
Example 3.D.1: the transformed Cobb-Douglas Utility Function
Expenditure Function
Expenditure function e( p,u) Min px s.t. u(x) u {x}
Properties: 1. Homogeneous of degree of one in p 2. Strictly increasing in u and nondecreasing in p 3. Concave in p 4. Continuous in p and u
Comparative Statics – Wealth Effects
The consumer’s Engel function x( p, w)
The wealth effect xl ( p, w) / w or Dwx( p, w) Normal goods and inferior goods
A choice rule C(B) B
The weak axiom of revealed preference (WARP): if x is revealed at least as good as y, then y cannot be revealed preferred to x
The economic constraint:
px p1x1 ... pL xL w
The Walrasian budget set (Definition 2.D.1)
Bp,w {x RL : px w}
or
u(x* ) xl
pl
px w
Solution: Walrasian demand function x*( p, w)
Utility Maximization -- Example
Example 3.D.1: the transformed Cobb-Douglas Utility Function
Expenditure Function
Expenditure function e( p,u) Min px s.t. u(x) u {x}
Properties: 1. Homogeneous of degree of one in p 2. Strictly increasing in u and nondecreasing in p 3. Concave in p 4. Continuous in p and u
Comparative Statics – Wealth Effects
The consumer’s Engel function x( p, w)
The wealth effect xl ( p, w) / w or Dwx( p, w) Normal goods and inferior goods
A choice rule C(B) B
The weak axiom of revealed preference (WARP): if x is revealed at least as good as y, then y cannot be revealed preferred to x
Chapter 10 (微观经济学-华侨大学,JeffCaldwell)
Chapter 10
Slide 7
Monopoly
The monopolist is the supply-side of the market and has complete control over the amount offered for sale.
Profits will be maximized at the level of output where marginal revenue equals marginal cost.
Chapter 10
Slide 3
Topics to be Discussed
Monopsony Monopsony Power Limiting Market Power: The Antitrust
Laws
Chapter 10
Slide 4
Perfect Competition
Review of Perfect Competition
Chapter 10
Slide 8
Monopoly
Finding Marginal Revenue
As the sole producer, the monopolist works with the market demand to determine output and price.
A Rule of Thumb for Pricing
6. is maximized @ MR MC
P
1
P
ED
1 ED
P
MC
1 1 ED
Chapter 10
Slide 27
andPublicGoods(微观经济学-华侨大学,JeffCaldwe
Standards are preferred when MSC is steep and MCA is flat.
Emissions Fee Charge levied on each unit of emission
Chapter 18
Slide 15
Standards and Fees
Dollars per unit of Emissions
MSC
Fee
3
Cost is less than the fee if emissions were
3 2.50
2
1
Firm 2’s Reduced Abatement Costs
Firm 1’s Increased Abatement Costs
Level of
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Emissions
Chapter 18
Slide 18
Ways of Correcting Market Failure
Chapter 18
Slide 8
Externalities
Positive Externalities and Inefficiency
Externalities can also result in too little production, as can be shown in an example of home repair and landscaping.
Chapter 18
Slide 9
External Benefits
Value MSB
D P1 P*
MEB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
Emissions Fee Charge levied on each unit of emission
Chapter 18
Slide 15
Standards and Fees
Dollars per unit of Emissions
MSC
Fee
3
Cost is less than the fee if emissions were
3 2.50
2
1
Firm 2’s Reduced Abatement Costs
Firm 1’s Increased Abatement Costs
Level of
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Emissions
Chapter 18
Slide 18
Ways of Correcting Market Failure
Chapter 18
Slide 8
Externalities
Positive Externalities and Inefficiency
Externalities can also result in too little production, as can be shown in an example of home repair and landscaping.
Chapter 18
Slide 9
External Benefits
Value MSB
D P1 P*
MEB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
chapter_1Preliminaries(微观经济学-华侨大学,JeffCal
Chapter 1: Preliminaries
Slide 2
Modern Microeconomics includes:
Chapter 13 Game theory
Chapter 17 Markets with asymmetric information
Chapter 1: Preliminaries
Every gun that is made,every warship launched,every rocket fired signifies,in the final sense,a theft from those who hunger and are not fed.
President D.D.Eisenhower
Slide 13
The Themes of Microeconomics
Why Not? Limited Resources
Chapter 1: Preliminaries
Slide 14
Try to understand the phrase“scarce resources”in the following
N.Gregory Mankiw
Chapter 1: Preliminaries
Slide 7
Preliminaries
Microeconomics deals with: Behavior of individual units When Consuming • How we choose what to buy
Chapter 1: Preliminaries
Slide 11
Preliminaries
The Linkage Between Micro and Macro-economics
曼昆微观经济学英文版11publicgoods
Summary
Public goods are neither rival nor excludable.Because people are not charged for their use of public goods, they have an incentive to free ride when the good is provided ernments provide public goods, making quantity decisions based upon cost-benefit analysis.
THE DIFFERENT
KINDS OF GOODS
Four Types of GoodsPrivate GoodsPublic GoodsCommon ResourcesNatural MonopolDS
Private GoodsAre both excludable and rival.Public GoodsAre neither excludable nor mon ResourcesAre rival but not excludable.Natural MonopoliesAre excludable but not rival.
The Free-Rider Problem
Since people cannot be excluded from enjoying the benefits of a public good, individuals may withhold paying for the good hoping that others will pay for it.The free-rider problem prevents private markets from supplying public goods.
Public goods are neither rival nor excludable.Because people are not charged for their use of public goods, they have an incentive to free ride when the good is provided ernments provide public goods, making quantity decisions based upon cost-benefit analysis.
THE DIFFERENT
KINDS OF GOODS
Four Types of GoodsPrivate GoodsPublic GoodsCommon ResourcesNatural MonopolDS
Private GoodsAre both excludable and rival.Public GoodsAre neither excludable nor mon ResourcesAre rival but not excludable.Natural MonopoliesAre excludable but not rival.
The Free-Rider Problem
Since people cannot be excluded from enjoying the benefits of a public good, individuals may withhold paying for the good hoping that others will pay for it.The free-rider problem prevents private markets from supplying public goods.
范里安微观经济学公共物品Public Goods
搭便车
参与者 B 不出资
出资
$20, $25 -$60, $0
$0, -$40 $0, $0
出资
参与者 A 不出资
搭便车
参与者 B 不出资
出资
$20, $25 -$60, $0
$0, -$40 $0, $0
两个纳什均衡: (出资, 出资) 和 (不出资, 不出资）
搭便车
因此当双方共同出资时使得在单个人情 况下不能供给的公共物品的供给成为可 能。 哪一种供给计划是最好的？ 并且搭便车的现象在双方共同提供的情 况下依然存在。
为了使得工人参与工作该激励和同至少应该使工人的效用为工人付出努力的努力水平e的效用成本为激励雇主的问题为选择e使得参与工作约束为了最大化雇主的利润该合同应该提供给工人他的保留效用水平也即激励雇主的问题为选择e使得参与工作约束激励雇主的问题为选择e使得st参与工作约束激励雇主的问题为选择e使得st参与工作约束雇主利润最大化时有能够使雇主利润最大化的合同依赖于工人的努力水平e该努力水平使得工人的边际努力成本等于雇主从工人努力中所得的边际收益
st
x B g B w B ,g B 0 .
回顾搭便车
G B的预算约束; 斜率= -1
gA xB
回顾搭便车
G
B的预算约束; 斜率= -1
gB0
gA
gB0不被允许
xB
回顾搭便车
G
B的预算约束; 斜率= -1
gB0
gA
gB0不被允许
xB
回顾搭便车
G
B的预算约束; 斜率= -1
gB0
gA
gB0不被允许
参与者 A 不购买 $100, -$35
-$20, $65 $0, $0
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level is Q*.
P*
P1
MEC
Firm output
Q* Q1
S = MCI
Aggregate social cost of
negative externality
MECI
D
Industry output
6
External Cost
Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.
Assume: 1) Competitive market 2) Output and emissions decisions are independent
3) Profit maximizing output chosen
MSC
6
Why is this more efficient than zero emissions?
Chapter 1
4
External Cost
Scenario
Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production.
Marginal Social Cost (MSC) is MC plus MEC.
cost MEC.
MSC
Price
MC
ቤተ መጻሕፍቲ ባይዱ
The profit maximizing firm produces at q1 while the efficient output level is q*.
MSCI
P1
q* q1
Chapter 1
The industry competitive output is Q1 while the efficient
Chapter 1
5
External Costs
Price
When there are negative externalities, the marginal social cost MSC is higher
than the marginal cost.
The differences is the marginal external
Use an output tax to reduce output
Input substitution possible by altering technology
Chapter 1
10
The Efficient Level of Emissions
Dollars per unit of Emissions
Chapter 1
q1 q*
Repair Level
9
Ways of Correcting Market Failure
Assumption: The market failure is pollution
Fixed-proportion production technology
Must reduce output to reduce emissions
Public Goods Private Preferences for Public Goods
Chapter 1
2
Externalities
Negative
Action by one party imposes a cost on another party
Positive
Action by one party benefits another party
At Eo the marginal cost of abating emissions
is greater than the
marginal social cost.
4
At E1 the marginal social cost is greater
Chapter 1
3
External Cost
Scenario
Steel plant dumping waste in a river The entire steel market effluent can be
reduced by lowering output (fixed proportions production function)
Topics to be Discussed
Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources
Chapter 1
1
Topics to be Discussed
Chapter 1
8
External Benefits
Value MSB
D P1 P*
MEB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
MSB are higher than marginal benefits D.
A self-interested home owner invests q1 in repairs. The efficient level of repairs
q* is higher. The higher price P1 discourages repair.
MC
Is research and development discouraged by positive externalities?
Chapter 1
7
Externalities
Positive Externalities and Inefficiency
Externalities can also result in too little production, as can be shown in an example of home repair and landscaping.
P*
P1
MEC
Firm output
Q* Q1
S = MCI
Aggregate social cost of
negative externality
MECI
D
Industry output
6
External Cost
Negative Externalities encourage inefficient firms to remain in the industry and create excessive production in the long run.
Assume: 1) Competitive market 2) Output and emissions decisions are independent
3) Profit maximizing output chosen
MSC
6
Why is this more efficient than zero emissions?
Chapter 1
4
External Cost
Scenario
Marginal External Cost (MEC) is the cost imposed on fishermen downstream for each level of production.
Marginal Social Cost (MSC) is MC plus MEC.
cost MEC.
MSC
Price
MC
ቤተ መጻሕፍቲ ባይዱ
The profit maximizing firm produces at q1 while the efficient output level is q*.
MSCI
P1
q* q1
Chapter 1
The industry competitive output is Q1 while the efficient
Chapter 1
5
External Costs
Price
When there are negative externalities, the marginal social cost MSC is higher
than the marginal cost.
The differences is the marginal external
Use an output tax to reduce output
Input substitution possible by altering technology
Chapter 1
10
The Efficient Level of Emissions
Dollars per unit of Emissions
Chapter 1
q1 q*
Repair Level
9
Ways of Correcting Market Failure
Assumption: The market failure is pollution
Fixed-proportion production technology
Must reduce output to reduce emissions
Public Goods Private Preferences for Public Goods
Chapter 1
2
Externalities
Negative
Action by one party imposes a cost on another party
Positive
Action by one party benefits another party
At Eo the marginal cost of abating emissions
is greater than the
marginal social cost.
4
At E1 the marginal social cost is greater
Chapter 1
3
External Cost
Scenario
Steel plant dumping waste in a river The entire steel market effluent can be
reduced by lowering output (fixed proportions production function)
Topics to be Discussed
Externalities Ways of Correcting Market Failure Externalities and Property Rights Common Property Resources
Chapter 1
1
Topics to be Discussed
Chapter 1
8
External Benefits
Value MSB
D P1 P*
MEB
When there are positive externalities (the benefits of repairs to neighbors), marginal social benefits
MSB are higher than marginal benefits D.
A self-interested home owner invests q1 in repairs. The efficient level of repairs
q* is higher. The higher price P1 discourages repair.
MC
Is research and development discouraged by positive externalities?
Chapter 1
7
Externalities
Positive Externalities and Inefficiency
Externalities can also result in too little production, as can be shown in an example of home repair and landscaping.