Externalities and Common Pool/Common Access Resources + Public Goods (T3IB1)

From Course Notes Vol. 2

MSB

MSB

Marginal Social Benefit

MSC

Marginal Social Cost

MPB. What does the graph [look like/represent]

Marginal Private Benefit. Downward sloping/Demand curve]

MPC. What does the graph [look like/represent]

Marginal Private Cost. Upward sloping/Supply curve

MEB

Marginal External Benefits

MEC

Marginal External Cost

Most government are concerned with what?

Optimizing the use of the country’s limited resources to meet unlimited human wants

Market Failure

Failure of markets to achieve allocative efficiency

• Market fail to produce output at which MSB = MSC —> Social Surplus is not maximized

Free market functions based on self-interest. What are these self-interest?

• Consumer: Aims to maximize satisfaction

• Producer: Aims to maximize profits