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Quotation of the Day…

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… is from page 27 of Harold Demsetz’s richly rewarding 2008 book, From Economic Man to Economic System [2]:

[N]egative consequences for others do not necessarily result in externalities as this term is used in economics.  Shifting land from wheat to corn production, say in order to produce biofuel, will raise the price of wheat, and this will make lovers of wheat products worse off.  So what?  Each owner of land committed to corn production faces the implicit cost of foregoing revenues he would receive from producing more wheat should he shift some of his land back to wheat production.  He therefore takes the price of wheat, which measures how much wheat users are willing to pay for another bushel of wheat, into full account when he chooses to grow corn.  There is a negative effect on wheat consumers, but there is no externality, and the value of wheat that can be grown on this land is fully taken into account.