Spillover Costs a Spillover costs are the negative

Spillover Costs (a) Spillover costs are the negative external effects of producing or consuming a product adding these costs to private costs raises the supply curve the preferred outcome is at a lower quantity than in a perfectly competitive market government intervention (e. g. an excise tax) can produce the preferred outcome Copyright © 2002 by Mc. Graw-Hill Ryerson Limited. All rights reserved.

Example of Spillover Cost • Second hand smoking

E. g. Of Spillover Costs • Pollution from a factory

Spillover Benefits (a) Spillover benefits are the positive external effects of producing or consuming a product adding these benefits to private benefits raises the demand curve the preferred outcome is at a higher quantity than occurs in a perfectly competitive market government intervention (e. g. a consumer subsidy) can produce the preferred outcome Copyright © 2002 by Mc. Graw-Hill Ryerson Limited. All rights reserved.

E. g. Spillover Benefits • Education – not only does it benefit the individual but society as a whole (doctors, engineers, etc)

Spillover Benefits (b) Figure 3. 14, page 73 Demand Supply Curves for an Engineering Education Demand Supply Schedules for an Engineering Education Enrollment Quantity Demanded Supplied (S 0) (S 1) (S) (thousands of students) 6000 8 10 12 5000 4000 3000 2000 9 10 11 12 13 14 11 10 9 8 b 5000 Tuition ($ per year) 6000 Spillover Benefits, Student Subsidy a 4000 3000 2000 S D 0 1000 0 8 D 1 9 10 11 12 13 14 Thousands of Students Copyright © 2002 by Mc. Graw-Hill Ryerson Limited. All rights reserved.