19-Externalities Flashcards
Define Externalities
COSTS or BENEFITS from PRODUCTION or CONSUMPTION to THIRD PARTIES that the PRICE MECHANISM Fails to take into Account
Define External Cost / Negative Externalities
Negative Spillover effect occurring to Third Parties that are not part of Transaction, these are Costs from Production or Consumption that Price Mechanism Fails to take into Account
State the Examples of External Costs of Production
–> Air Pollution
–> Water Pollution
–> Deforestation
–> Carbon Emissions
–> Noise Pollution / Congestion
Elaborate the External Cost of production
–> Air Pollution
It may cause Breathing difficulties and Costs to health services
Elaborate the External Cost of production
–> –> Water Pollution
Negative Impact on Fishing Industries as Fishes are Harmed, Water companies have to invest more in Cleaning the Water
Elaborate the External Cost of production
–> Deforestation
Loss of natural habitant for animals, Less Oxygen in environment will cause health issues and Costs to health Services
Elaborate the External Cost of production
–> Carbon Emissions
These are Green House gases contributing to Global Warming that may cause Rising Sea Level / Flooding, makes it difficult to Farm Certain Crops as Weather is no longer ideal thus leads to loss of human life / Property
State the External Cost in Consumption
–> Smoking - Passive Smoking where a Non-smoker may suffer illness as Smokers, HealthCare Costs for Government will Rise
Define Private Cost
Costs of an Economic Activity to Consumers or Firms WHO ARE INTERNAL TO THE EXCHANGE
Eg- Costs of Production, Price Paid by Consumer
State the Formula For Marginal Social Cost
MARGINAL SOCIAL COST = MARGINAL PRIVATE COST + MARGINAL EXTERNAL COST
Define External Benefits / Positive Externalities
Positive Spillover effect occurring to Third Parties that are not part of Transaction, these are Benefits from Production or Consumption that Price Mechanism Fails to take into Account
State the Examples of External Benefits of Production
–> Recycling
–> Renewable Energy
State the Examples of External Benefits in Consumption
–> Education
–> HealthCare
–> Vaccination
Define Private Benefits
Benefits to Consumers and Producers WHO ARE INTERNAL TO EXCHANGE
Eg- Revenue earned by Firms, Utility from Consumption
State the Formula For Marginal Social Benefits
MARGINAL SOCIAL BENEFIT = MARGINAL PRIVATE BENEFIT + MARGINAL EXTERNAL BENEFIT
