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Chapter 12, page 11 of ActEd notes

L

lucky999

Member
I was wondering if the notes should read "consumption" instead of "production" at the end of the last two bullet points at the end of the page?

Thanks.
 
Surely it doesn't matter, because the quantity will be determined by the intersection of MB and MC, so the amount produced and consumed will be the same? :)
 
I'd say so.

I guess an overconsumption implies an overproduction but in the context of the chapter it is the consumption that is causing the externality, and so the consumption should be reduced.
 
Yes - if the problem is overconsumption, we'd want to reduce that consumption, but we could do that by reducing production. For example, if we impose a tax on producers, this would raise their costs and hence shift the supply curve to the left resulting in lower production and consumption.
 
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