Externality Defined An externality is present when the activity of one entity(person or firm)directly affects the welfare of another entity in a way that is outside the market mechanism. Negative externality: These activities impose damages on others. Positive externality: These activities benefits on others
Welfare economics Need systematic framework to assess the desirability of various government actions. Welfare economics is concerned with the social desirability of alternative economic states. Distinguishes cases when private markets work well from cases where government intervention may be warranted
Public Finance Defined Public finance is about the taxing and spending activities of the government. Also known as \public sector economics\or \public economics.\ Focus is on microeconomic functions of government- polices that affect overall unemployment or price levels are left for macroeconomics
1. Adverse selection(逆向选择) The situation that occurs when the people who are most likely to receive benefits from a certain type of insurance are the ones who are most likely to purchase it