Externalities Externalities or spillover occur when some of the benefits or costs of production are not fully reflected in market demand or supply schedules. Some of the benefits or costs of a good may spill over to a third party. It is also called third party effect. Internalizing the external cost/ benefit will lower the impact of externalities. The optimal output level is MSB = MSC. Positive externalities refer to spillover benefits. It occurs when direct consumption by some individuals impact third parties positively. Public health vaccinations and education are two examples. Because some of the benefits accrue to others, [MSB (Marginal Social Benefit) > MPC (Marginal Private Benefit)], individuals will demand too little for themselves, and resources will be underallocated by the market. Correcting for spillover benefits requires that the government somehow increase demand to increase benefits to socially desirable amounts. 1. Government can increase demand by providing subsidies like food stamps and education grants to subsidize consumers. 2. Government can finance production of goods or services such as public education or public health. 3. Government can increase supply by subsidizing production, such as higher education, immunization programs or public hospitals. Negative externalities impact the third party negatively. An example is pollution, which allows the polluter to enjoy lower production costs because the firm is passing along the cost of pollution damage or clean up to society. Because the firm does not bear the entire cost, [MSC (Marginal Social Cost) > MPC (Marginal Private Cost)], it will overallocate resources to production. Correcting for negative externalities requires that government get producers to internalize these costs. 1. Legislation can limit or prohibit pollution, which means the producers must bear costs of antipollution efforts. 2. Specific taxes on the amounts of pollution can be assessed, which causes the firm to cut back on pollution as well as provide funds for government cleanup.
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A firm uses inputs to produce outputs. So there are four possibilities. Output Market Perfectly competitive Input Market Perfectly competitive Not Perfectly competitive Perfectly competitive in both input & output markets Perfectly competitive in input but not output market Perfectly Not Perfectly competitive in competitive output but not input market Perfectly competitive in neither input nor output market
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A firm uses inputs to produce outputs. So there are four possibilities. Output Market Perfectly competitive Input Market Not Perfectly competitive Perfectly competitive Not Perfectly competitive Perfectly competitive in both input & output markets Perfectly competitive in input but not output market Perfectly competitive in neither input nor output market
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Negative Externalities: Pollution Marginal social cost is the marginal cost incurred by the entire society—by the producer and by everyone else on whom the cost falls—and is the sum of marginal private cost and marginal external cost. That is: MSC = MC + Marginal external cost. We express costs in dollars but must remember that the dollars represent the value of a forgone opportunity. Marginal private cost, marginal external cost, and marginal social cost increase with output. “
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GSM: handoff between MSCs  anchor MSC: first MSC visited during cal home network correspondent Home MSC anchor MSC MSC  call remains routed through anchor MSC  new MSCs add on to PSTN MSC MSC (a) before handoff end of MSC chain as mobile moves to new MSC  IS-41 allows optional path minimization step to shorten multi-MSC chain 6: Wireless and Mobile Networks 6-64
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GSM: handoff between MSCs  anchor MSC: first MSC visited during cal home network correspondent Home MSC anchor MSC MSC  call remains routed through anchor MSC  new MSCs add on to PSTN MSC MSC (b) after handoff end of MSC chain as mobile moves to new MSC  IS-41 allows optional path minimization step to shorten multi-MSC chain 6: Wireless and Mobile Networks 6-65
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A firm uses inputs to produce outputs. So there are four possibilities. Output Market Perfectly competitive Perfectly competitive Input Market Not Perfectly competitive Not Perfectly competitive Perfectly competitive in both input & output markets Perfectly competitive in neither input nor output market
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Free Market for K-12: Supply Side On the supply side we assume: The market is perfectly competitive No externalities in production (MSC=MPC) Constant marginal cost
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