【正文】 sts (defined below) are low, then private transactions are efficient. There are no externalities because all parties take into account the externalities involved. The oute is independent of who has the property rights. 169。 2020 Pearson AddisonWesley Figure shows the equilibrium in an unregulated market with an external cost. The quantity of the good produced is where marginal private cost (MC) equals marginal social benefit (MSB). Negative Externality: Pollution 169。 2020 Pearson AddisonWesley Negative Externality: Pollution Private Cost and Social Cost of Pollution A private cost of production is a cost that is borne by the producer. Marginal private cost (MC) is the private cost of producing one more unit of a good or service. An external cost of production is a cost that is not borne by the producer but is borne by others. Marginal external cost is the cost of producing one more unit of a good or service that falls on people other than the producer. 169。 2020 Pearson AddisonWesley Negative Externality: Pollution An externality is a cost or benefit that arises from production and falls on someone other than the producer, or a cost or benefit that arises from consumption and falls on someone other than the consumer. A negative externality imposes an external cost. 169。17 ECONOMICS OF THE ENVIRONMENT 169。 2020 Pearson AddisonWesley Negative Externality: Pollution Sources of Pollution Economic activity pollutes air, water, and land, and these individual areas of pollution interact through the ecosystem. The three biggest sources of pollution are road transportation, electricity generation, and industrial processes. 169。 2020 Pearson AddisonWesley Negative Externality: Pollution Marginal social cost (MSC) is the marginal cost incurred by the entire society—by the producer and by everyone else on whom the cost falls. Marginal social cost is the sum of marginal private cost and marginal external cost. MSC = MC + Marginal external cost We express costs in dollars but remember that the dollars represent the value of a fone opportunity. Marginal private cost, marginal external cost, and marginal social cost increase with output. 169。 2020 Pearson AddisonWesley At the market equilibrium, MSB is less than MSC, so the market produces an inefficient quantity of the good. At the efficient quantity of the good, MSC = MSB. With no regulation, the market produces too much of the good and creates a deadweight loss. Negative Externality: Pollution 169。 2020 Pearson AddisonWesley Negative Externality: Pollution The Coase solution works only if transactions costs are low. Transactions costs are the cost of conducting a transaction. An example is the transactions costs of buying a home include fees for a realtor, a mortgage loan advisor, and legal assistance. When a large number of people are involved in an externality and transactions costs are high, the Coase solution of establishing property rights doesn’t work and governments try to deal with the externality. 169。 2020 Pearson AddisonWesley Negative Externality: Pollution Emissions Charges The government sets a price per unit of pollution, so that the more a firm pollutes, the higher are its emissions charges. For the emissions charge to induce the firm to generate the efficient level of pollution, the government would need a lot of information that is usually unavailable. 169。 2020 Pearson AddisonWesley The Tragedy of the Commons Figure illustrates the sustainable catch. As the stock of fish increases, the sustainable catch increases. Beyond that number, more fish pete for food and the sustainable catch falls. If the catch exceeds the sustainable catch, the fish stock diminishes. 169。 2020 Pearson AddisonWesley The Tragedy of the Commons Property Rights By converting the mon resource to private property, fishers face the full social cost of their actions. The marginal social cost curve bees the supply curve and the resource is used efficiently. 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley The Anatomy of Factor Markets –Four factors of production are ? Labor ? Capital ? Land (natural resources) ? Entrepreneurship ? Let’s take a look at the markets in which these factors of production are traded. 169。 2020 Pearson AddisonWesley –Entrepreneurship –Entrepreneurship services are not traded in markets. –Entrepreneurs receive the profit or bear the loss that results from their business decisions. The Anatomy of Factor Markets 169。 2020 Pearson AddisonWesley ?The Firm’s Demand for Labor –The value of the marginal product of labor (VMP) tells us what an additional worker is worth to a firm. –VMP tells us the revenue that the firm earns by hiring one more worker. –The wage rate tells us what an additional worker cost