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Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Personalize the benefit Socialize the cost
Negative Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Personalize the benefit Socialize the cost
Negative Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Personalize the benefit Socialize the cost
Negative Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Personalize the benefit Socialize the cost
Negative Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Socialize the benefit Personalize the cost
Positive Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Socialize the benefit Personalize the cost
Positive Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Socialize the benefit Personalize the cost
Positive Externality
Personal Private
Me
Social Public
Everybody Else
Benefits
Costs
Socialize the benefit Personalize the cost
Positive Externality
Negative Externality
Too much of the good is produced because
someone else is paying part of the costs
Positive Externality
Too little of the good is produced because
producer doesn’t receive all the benefits
Government Regulation
Command and Control Incentive-Based Optimal level of pollution? Coupons to pollute
$ Cost
0% 50% 100%The cost to make things perfectly pure is infinite.
Therefore there is an optimal amount of cleanliness where marginal benefits equal marginal costs.
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100
0 1 2 3 4 5 6 7 8 9 10
Demand
Permits to Drive
Set the quantity !
Demand curve will set the price