19) Externalities

Question 0

What does negative externalities/ external cost mean

Answer 0

⚫️costs of some economic activity
➡️not reflected on the price
➡️negative spill over effects in third parties
➡who ️not involved in the economic activity

⚫️occurs when social cost of an economic activity
➡️greater than private cost

Question 1

What does externalities mean

Answer 1

⚫️cost or benefit of some economic activity
➡️not reflected on price
➡️lead to over or under production of goods and services

⚫️can cause spill over effects on third parties
➡️not involved in the economic activity

Question 2

What is a private cost

Answer 2

⚫️direct cost of an activity imposed on

➡️consumer, firm or government of an economic activity

Question 3

What are social costs of production

Answer 3

⚫️full cost to society

➡️private cost to the firm
➡️plus
➡️external costs to society

Question 4

What are positive externalities/external benefit

Answer 4

⚫️benefit of some economic activity
➡️not reflected on the price
➡positve spill over effect on third parties
➡️not involved in the economic activity

⚫️social benefit of economic activity
➡️greater than private benefit

Question 5

What does private benefit mean

Answer 5

⚫️direct benefit enjoyed by

➡️the consumer of the good or service

Question 6

What is a social benefit of consumption of a good and service

Answer 6

⚫private benefit to the consumer of the good and service

➡️plus the external benefits to society

Question 7

How can the market work efficiently by avoiding externalities

Answer 7

Full cost and benefit reflected on the price

Question 8

What will happen if the full cost and benefit is not reflected on the price

Answer 8

⚫️Can lead to both under and over production
➡️of goods and services
➡️causing misallocation of resources