lecture 8 accidental double

What is an externality

What are the two types of externalities

What is the key issue

The price system fails to capture external costs or benefits

• competative markets become inefficient

How would you interpret this example

What are the profit equations for these two firms

How would you maximise firm 1s profit

How would you find the social optimal output

How would you sole the problem using a pigouvian tax

What is the problem with the pigouvian tax