Sunday, December 18, 2011
Daily Review -- Externalities
Starting from the upper right and working in sequence, the curves are MSC, MSB, and MPB. For Max, cheese would be a positive externality since MSB > MPB and would require a subsidy to entice producers to make more cheese.
From a homeowner's perspective, the cheese might be a negative externality so any economic situation must be viewed in the context of the user. I believe that utilitarianism must be view by the act and not a categorical rule such as the one Kant required.
In this case, does providing more cheese benefit society as a whole? If it doesn't then the subsidy should not be included in the production.
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