Achieving the Socially Optimal output Internalizing an externality involves ltering incentives so that people take into account the external effects of their actions The government can internalize an externality by imposing a tax on the producer to reduce the equilibrium quantity to the socially desirable quantity
Achieving the Socially Optimal Output • Internalizing an externality involves altering incentives so that people take into account the external effects of their actions. • The government can internalize an externality by imposing a tax on the producer to reduce the equilibrium quantity to the socially desirable quantity
Positive externalities in production When an externality benefits the bystanders a positive externality exists The social costs of production are less than the private cost to producers and consumers A technology spillover is a type of positive externality that exists when a firms innovation or design not only benefits the firm but enters society' s pool of technological knowledge and benefits society as a whole
Positive Externalities in Production • When an externality benefits the bystanders, a positive externality exists. • The social costs of production are less than the private cost to producers and consumers. • A technology spillover is a type of positive externality that exists when a firm’s innovation or design not only benefits the firm, but enters society’s pool of technological knowledge and benefits society as a whole
Positive externalities in production Price Value of of robo Supply(private cost echnology spillover Social cost Equilibrium Optimum eman d private value) 0 Q Quantity MARKET OPTIMUM of robots
Quantity of Robots 0 Price of Robot QOPTIMUM Demand (private value) Supply (private cost) Social cost QMARKET Value of technology spillover Equilibrium Optimum Positive Externalities in Production