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Chap 10

Chap 10

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Published by: api-3706804 on Oct 19, 2008
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Harcourt Inc. items and derived items co ri ht \u00a9 2001 b Harcourt Inc.
Externalities
Chapter 10
Copyright \u00a9 2001 by Harcourt, Inc.

All rights reserved. Requests for permission to make copies of any part of
the
work should be mailed to:

Permissions Department, Harcourt College Publishers,
Harcourt Inc. items and derived items co ri ht \u00a9 2001 b Harcourt Inc.
Market Efficiency - Market Failures

Recall that: Adam Smith\u2019s \u201cinvisible
hand\u201d of the marketplace leads self-
interested buyers and sellers in a
market to maximize the total benefit
that society can derive from a market.

But market failures
can still happen.
Harcourt Inc. items and derived items co ri ht \u00a9 2001 b Harcourt Inc.
Market Failures: Externalities
xWhen a market outcome affects

parties other than the buyers and
sellers in the market, side-effects are
created calledexternalitie s.

xExternalities cause markets to be
inefficient, and thus fail to maximize
total surplus.

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