Chapter 17 Chapter 17 Externalities and Public Goods
Chapter 17 Chapter 17 Externalities and Public Goods
Chapter 17 Chapter 17 Externalities and Public Goods
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4/14/2014Positive externalities• Activities that create positive benefits for firms orindividuals who didn’t pay for the good or service.• You only take into account your private marginalbenefits (e.g., vaccine), but ignore the marginalexternal benefits that your action causes on otherindividuals.• Examples: education, health care, research <strong>and</strong>development (unpatented).Positive <strong>Externalities</strong>: UnderproductionExample: vaccination,primary/secondary education,…subsidyUnregulatedMPB = MCDem<strong>and</strong>SupplyOptimal MSB = MCMSB= MPB + MEB14
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