Does Anyone Understand Externalities?

You are reading Economic Forces, a free weekly newsletter on economics, especially price theory, without the politics. You can support our newsletter by signing up here: People love talking about externalities and appealing to externality-type arguments. However, I think that sometimes people confuse what we might call general equilibrium effects with externalities. Sometimes these general equilibrium effects are referred to as “pecuniary externalities”, which might further exacerbates the confusion.

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