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Nathan Pearce
on Nov 17, 2024

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Suppose a certain good conveys either an external cost or an external benefit. If the private cost of the last unit of the good that was produced is equal to the private value of that unit, then the sum of producer and consumer surplus is maximized.

External Cost

A cost that a transaction or activity imposes on a party who did not agree to the transaction or activity, often leading to negative consequences like pollution or health issues.

External Benefit

A positive effect on a third party or the general public that arises from a transaction between others.

Producer Surplus

The difference between what producers are willing to accept for a good or service and what they actually receive, due to higher market prices.

  • Understand the concept of externalities and their impact on market efficiency.
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IB
India BryantNov 20, 2024
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