Natural Resources & Economics

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Last updated 1:55 PM on 9/10/26
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9 Terms

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What is an externality?

Unintended (and uncompensated) effects from production or consumption upon others.

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Formula of company production function

X = fx (zi)

e = fe (zi)

X = output
fx = inputs 1, 2, …
e = emissions

3
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Formula for Consumer utility function

U = f(xi, e)

U = utility
xi = products 1, 2..'
e = emissions

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Negative externality abbv.

MB = Marginal Benefit
MEC = Marginal External Cost

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C

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Def Coase Theorem

Given a clearly defined assignment of property rights, provate bargaining between individuals will correct externality problems and lead to efficient outcomes

conditions:
1. clearly defined property rights
2. no transaction cost

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