From: Mr Ho
I've thought about some of the questions the classwas asking regarding market failure just now, and these are some of myanswers
Claire's question about externalities being"subjective". She gave the example of a person who "didn't mind" beingaffected by secondhand smoke. So if the person "doesn't mind" is therestill an externality? My answer is that externalities still existbecause there is still an external cost being imposed upon the person.In the long run, he or she will still have to end up spending money onmedical bills due to the second hand smoke, so externalities are notsubjective. Please go by the definition of either an external cost orbenefit being imposed on a third party when identifying externalities.
ForCamilus's question about how the "private cost" of the suicide of aperson owing money leading to an "external benefit" to his family asthey will not have to be harrassed by the loanshark, this is totallyirrelevant to the concept of private cost and external benefit!
Theconcept of private cost and external benefit apply when it involves theproduction and consumption of goods and services, but in this case,there are absolutely no goods and services invoved. So how can you talkabout private cost and external benefit?
The last question aboutthe case study scenario I gave whereby the lady suffering asthma wasgiven first aid and hence "compensated" for the negative externality imposed on her is a valid point. I agree that in this case, there is no externality since the third party has been compensated. I should have made the externalities in the scenario clearer. But the fact that the class brought up this point is very good and shows you all are thinking through the concepts taught. Keep it up!
Regards,
Mr Ho
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