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 4 of 17
…
Figure 1 - The Market for Aluminum
This shows supply and demand curves in an unregulated market for aluminum.
The demand curve reflects the value to buyers.
The supply curve reflects the costs of production of sellers.
The equilibrium quantity, Qmarket
· maximizes the total value to buyers
· maximizes the total profits of sellers
In the absence of externalities, the market equilibrium is efficient.
…
If there is any government intervention the price/quantity equilibrium will change.
To address negative and positive externalities
· government taxes or other disincentives will decrease quantity supplied and demanded, moving the equilibrium point left
· government subsidies or other incentives will increase quantity supplied and demanded, moving the equilibrium point right
… …
positive externalities and negative externalities
sei no gaibusei to fu no gaibusei
正の外部性と負の外部性

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