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why market outcome are ineffeciant in the presence of externalities?
04-04-2014, 08:06 PM
Post: #1
why market outcome are ineffeciant in the presence of externalities?
why market outcome are ineffeciant in the presence of externalities

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04-04-2014, 08:10 PM
Post: #2
 
You have to think about two types of costs/benifits - private and social. For example, private cost of pollution might be relatively low - the polluter doesn't want to pay for cleaning air or water - but social cost is rather high. Opposite example: it's very expensive for me to have fireworks, but I can't exclude other people from enjoying the fireworks for free. Thus, efficient quantity does not equal efficient cost in presence of externalities. It's easy for a government to provide too much or too little of a sertain good, because true market cost is hard to estimate.
I hope this makes sense.

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04-04-2014, 08:23 PM
Post: #3
 
could you be more clear pls.. pls add more details, and i ll b able to help you..
thank you
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04-04-2014, 08:30 PM
Post: #4
 
Social marginal cost > social marginal benefit
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