Principles+of+Economics+7th+Edition+Mankiw-Solution+Manual Chapter 10

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1、Chapter10/Externalities❖195100Chapter10ExternalitiesEXTERNALITIESWHAT’SNEWINTHESEVENTHEDITION:ThereisanewIntheNewsfeatureon“WhatShouldWeDoaboutClimateChange.”LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand:Øwhatanexternalityis.Øwhyexternalitiescanmakemarketoutcomesinefficient

2、.Øthevariousgovernmentpoliciesaimedatsolvingtheproblemofexternalities.Øhowpeoplecansometimessolvetheproblemofexternalitiesontheirown.Øwhyprivatesolutionstoexternalitiessometimesdonotwork.CONTEXTANDPURPOSE:Chapter10isthefirstchapterinthemicroeconomicsectionofthetext.Itisthefirstchapterinathree-

3、chaptersequenceontheeconomicsofthepublicsector.Chapter10addressesexternalities—theuncompensatedimpactofoneperson’sactionsonthewell-beingofabystander.Chapter11willaddresspublicgoodsandcommonresources(goodsthatwillbedefinedinChapter11)andChapter12willaddressthetaxsystem.InChapter10,differentsour

4、cesofexternalitiesandavarietyofpotentialcuresforexternalitiesareaddressed.Marketsmaximizetotalsurplustobuyersandsellersinamarket.However,ifamarketgeneratesanexternality(acostorbenefittosomeoneexternaltothemarket)themarketequilibriummaynotmaximizethetotalbenefittosociety.Thus,inChapter10wewills

5、eethatwhilemarketsareusuallyagoodwaytoorganizeeconomicactivity,governmentscansometimesimprovemarketoutcomes.©2012CengageLearning.AllRightsReserved.Maynotbescanned,copiedorduplicated,orpostedtoapubliclyaccessiblewebsite,inwholeorinpart.Chapter10/Externalities❖195KEYPOINTS:·Whenatransactionbetwe

6、enabuyerandsellerdirectlyaffectsathirdparty,theeffectiscalledanexternality.Ifanactivityyieldsnegativeexternalities,suchaspollution,thesociallyoptimalquantityinamarketislessthantheequilibriumquantity.Ifanactivityyieldspositiveexternalities,suchastechnologyspillovers,thesociallyoptimalquantityis

7、greaterthantheequilibriumquantity.·Governmentspursuevariouspoliciestoremedytheinefficienciescausedbyexternalities.Sometimesthegovernmentpreventssociallyinefficientactivitybyregulatingbehavior.Othertimesitinternalizesanexternalityusingco