Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 4 The Economics of the Public Sector
Chapter 10 of 36 Externalities
Section 3 of 17
There are two types of externalities
· negative externality, if the impact on the bystander is detrimental
· positive externality, if the impact on the bystander is beneficial
When externalities occur society's interest in a market outcome
· extends beyond the well-being of the buyers and sellers who participate in the market.
· also includes the well-being of non-participant bystanders who are affected by the externality
…
Buyers and sellers in a market neglect/minimalize the external effects of their actions when deciding how much to demand or supply.
Because people who do not buy or sell in the market are affected, the market equilibrium is not efficient when there are externalities.
When externalities such as pollution are created by a market, the equilibrium does not maximize the total benefit to the entire society.
…
The release of dioxin by paper producers into the environment is a negative externality.
Self-interested paper producers do not consider the full cost of the pollution they create in their production process.
Self-interested paper consumers do not consider the full cost of the pollution they create from their purchasing decisions.
As a result, paper producers will emit too much dioxin without government intervention.
…
Exhaust from automobiles is a negative externality, creating smog other people have to breathe.
As a result of this externality drivers tend to pollute too much.
The federal government reduces this problem by setting emission standards for cars.
One purpose of government taxation on gasoline is to encourage people to drive less.
…
Maintained and restored historic classic buildings provide a positive externality.
People who pass by them can enjoy their beauty.
These buildings provide a sense of local history.
Building owners do not get the full benefit from cost of maintenance and restoration, so they prefer to demolish old buildings and use the property for new purposes.
Local governments respond by regulating destruction of historic buildings, providing restoration subsidies to owners, or outright purchase.
…
Results from new inventions provides a positive externality because they create knowledge other people can use.
Without some protection inventors cannot gain full benefits and lose incentive to invent, otherwise anyone can copy and adapt their inventions to make money.
Governments address this problem with the patent system, which gives inventors exclusive rights to their inventions for a specified length of time.
… …
exclusive rights for inventors
hatsumei-sha e no dokusen-ken
発明者への独占権

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