So let's go back to that example from the beginning the dog. Um So you'll see that now we're extending it right? Not just the cost to the seller those cutting tree costs but now also the cost to everybody, Right? This pollution. So I'm gonna say this external cost is the pollution right to those residents. This pollution in their lake um is a cost to these to these residents. And let's say there's a bunch of houses right on the other side of the lake um That now they have to deal with this pollution, right? This cost is being put onto these people who live in these houses. Um But compare that maybe now this this factory right? It's on a lake and it spews chemicals into the lake in the production process, right? It's kind of just like a byproduct of the production is these chemicals right? This pollution it's putting into the lake. Right? So kind of just like the standard costs we might be used to in a in a paper production facility. Okay so this factory um it's sitting on a lake, right? And this factory like we're used to they produce paper, right? So their private costs could include things like cutting down the trees and processing them into paper. So the first one here is a very common example to help you understand this is we think of a paper production factor. So let's go ahead and do some some examples of negative externalities to kind of bring this all together. Two point Oh where we're gonna have um Not only those private costs but we're gonna have these external costs right? We're gonna be showing that social cost on the curve. And this is kind of like the supply curve plus right? This is kind of like supply curve. Which is this external cost? Right? And this is cost to people outside the transaction? All right? So when we're talking about externalities instead of having a supply curve, what we're gonna have is this marginal social cost curve? Okay. So the cost we're used to from the supply curve but now we're gonna add something to that cost. But the idea here is that the social cost right? It's gonna include the private cost. Now is this social cost? Right? Remember I'm saying we're gonna extend um the cost and the benefit to society as a whole. The cost to the seller to produce something creates the supply curve um And compare that to what we're gonna be talking about. This has been the supply curve that we've seen in previous units and stuff. First we have what's called the private cost. So we're gonna start here with what we know already. Okay? So with the negative externality we impose a cost on those innocent bystanders. We're gonna impose a cost on to these innocent bystanders. So first we got a negative externality, right? So it's negative, right? We hear negative externality. So kind of just stick with me and and and then we'll get there. And I'm gonna define a couple of things before we get to our examples. We're gonna start here with the negative externalities. Okay? Um And we're gonna see that this can either be a good a good thing, like a benefit to those outsiders or a bad thing. Someone who has nothing to do with the transaction. Okay? So what we're gonna see is that sometimes these market transactions between a buyer and a seller are going to impose some sort of cost or benefit on someone which I call an innocent bystander. And this is going to include these ideas of externalities. Now we're gonna think of the benefit to society as a whole and the cost to society as a whole. Before we I've only been thinking of it of the people in the transaction. And basically what I want, how I want you to think about it is we're gonna extend the idea of cost and benefit to the whole society. So in this unit we're gonna talk about externalities. So have you ever been woken up at night by a loud barking dog? Or maybe it's your dog keeping your neighbors up? Maybe you're just wondering what any of this has to do with economics? Well, let's dive into the topic of externalities.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |