Happy block day! Have a piece of paper out and be ready to take notes

SCC rough drafts were due yesterday Agenda Externalities: introduction Positive and negative externalities: cartoon Pollution from a factory Objectives Students will be able to define and describe market failures, positive externalities and negative externalities

Market Failure Market failure= whenever markets do not allocate goods and services in the most efficient way Oligopolies, monopolistic competition, and monopolies are all markets that are not perfect (perfect competition is perfect!) Externalities are another example of market failure

Externalities Externalities are a side effect of production or consumption experienced by someone other than the producer or consumer

Negative Externality A cost that falls on someone other than the producer or consumer

Positive Externality A benefit that falls on someone other than the producer or consumer

Positive Externality

“S.F. building boom eats up street parking” SF Gate, October 22, 2014 “The sound of jackhammers and beeping tractors in many San Francisco neighborhoods is as common as the squawk of seagulls at AT&T Park or the rumble of F-line streetcars on Market Street. But with every lurch of the city’s construction boom, a precious urban commodity disappears: street parking. From Pacific Heights to Hayes Valley, Potrero Hill and the Castro, strips of curb are being legally blocked off as tow-away zones by construction crews, both private and public — an incursion that can last weeks, if not months. On one hand, the curb takeovers are necessary. Still, they represent a blast furnace in San Francisco’s parking hell that frustrates neighborhood residents and has driven a city supervisor to look into changing the laws.”

Which of the following are examples of positive externalities and negative externalities? Identify what the benefit or cost involved might be. – Car exhaust – A barking dog in your neighbors yard – Apartment dwellers who buy fire extinguishers – Lights for MVHS football field – Required vaccinations for school kids Externalities Talk about these with your table, write them if you wish, be prepared to label on the board.

ALL EXTERNATLITIES ARE MARKET FAILURES!

Whiteboards!- Draw two cartoons- one that represents a positive externality and one that represents a negative externality. Add enough detail to your cartoons so that your classmates can correctly identify them

Based on your understanding of externalities, choose the proposal you think is best and write a short paragraph that defends your choice using the key concepts of market failure, cost-benefit analysis, externalities, positive externality and negative externality in your response. Pollution from a factory A tire factory pollutes a nearby river, much to the displeasure of the residents of the town who live downstream. At a town meeting, residents discuss three proposals for solving the pollution problem. Proposal 1 –Because the downstream residents will receive the benefits of pollution control, they should pay for it. This is a clear case of external benefits or positive externalities. A property tax should be placed on the residents downstream. Proposal 2 - The government should force the tire factory to close. That is the only way to stop all the pollution. There is no reason for downstream residents to suffer. Any other solution still leaves some dirty water. Proposal 3 - The tire company is not counting all of its costs of production. Keeping the river clean should be one of these costs. A tax, called an emission tax, should be placed on the company for each cubic foot of polluted water it releases into the river.

Pg. 4 - Public and Private Goods Market Failures: Public vs. Private goods pg In all markets, even perfectly competitive markets, government must provide some goods and services. These products, known as public goods, have special characteristics that make it impossible or inefficient for private businesses to sell these goods and make a profit in the product market. Therefore, the market has failed to provide those particular goods and services and the government must do so instead.

Pg. 4 – Public and Private Goods

 In many cases, private businesses will produce some amount of these goods but not the amount that reflects all of the benefits or all of the costs of the production and/or consumption. This happens because of externalities and it creates the free-rider problem.