10- Externalities definitions Flashcards
Market failure
When the free market fails to allocate scarce resources at the socially optimum levels of output leading to a net social welfare loss.
Externalities
Negative/positive impact on 3rd parties from production and consumption. Not reflected in market price.
Merit good
Positive consumption externalities
De merit good
Negative consumption externalities
Private cost
Internal cost faced by consumer/producer
External cost
The externality
Private benefit
Benefit or satisfaction and utility derived from consumption
External benefit
Social benefit from activity
Marginal private benefit
Extra benefits gained through producing/ consuming an extra unit
External cost
Difference between costs and benefits
Negative production externality
Cost to 3rd parties as a result of the actions of producers.
Negative consumption externality
Costs to 3rd parties as a result of the actions of consumers.
Positive consumption externalities
Benefits to 3rd parties as a result of actions from consumers.
Positive production externalities
Benefits to 3rd parties as a result of actions from producers.
