1.3.2 - Externalities Flashcards
When Do Externalities Occur?
(2 Points)
~ When there is an external impact on a third party not involved in the economic transaction.
~ These Impacts can be positive and negative known as spillover effects.
What Are External Costs?
Costs to 3rd parties that lie outside the initial transaction.
What Are External Benefits?
Benefits to 3rd parties that lie outside the initial transaction.
What Are Social Costs?
Costs of the activity of society as a whole.
What Are Social Benefits?
Benefits of the activity of society as a whole.
What Are Private Costs?
Costs to the individual participating in the economic activity.
What Are Private Benefits?
Benefits to the individual participating in the economic activity.
What Is The Formula For Social Costs?
Social Costs = Private Costs + External Costs
What Is The Formula For Social Benefits?
Social Benefits = Private Benefits + External Benefits
What Does The Following Stand For?
~ MPC
~ MSC
~ MPB
~ MSB
~ Marginal private cost.
~ Marginal social cost.
~ Marginal private benefit.
~ Marginal social benefit.
What Is The Private Optimum?
(2 Points)
~ When the marginal private cost is the same as the marginal private benefit.
~ MPC = MPB.
What Is The Social Optimum?
(2 Points)
~ When the marginal social cost is the same as the marginal social benefit.
~ MSC = MSB.
What Is Meant By Diminishing Marginal Returns?
When variable factors of production become less efficient, when added to a set of fixed factors of production in the short term.
When Are Negative Externalities Of Production Created?
During the production of a good or service.
How Do Negative Externalities Of Production Occur?
When the marginal social costs are greater than marginal private costs.
