10 Externalities

An industrial unit, with smoke billowing out of its chimneys at the bank of a river. Afforested mountains are visible in the background.

How can we limit carbon emissions?

Chapter Checklist

When you have completed your study of this chapter, you will be able to

  1. 1 Explain why negative externalities lead to inefficient overproduction and how property rights and pollution taxes can achieve a more efficient outcome.

  2. 2 Explain why positive externalities lead to inefficient underproduction and how public provision, subsidies, and vouchers can achieve a more efficient outcome.

MyEconLab Big Picture Video

Externalities in our Daily Lives

MyEconLab Concept Video

Climate change is an externality, and a huge one. You will learn what economists say about limiting ...

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