20) Diagram Showing A Negative Externality Of Production

Question 0

Name the evaluation of the theory of negative externalities

Answer 0

⚫️imperfect knowledge

⚫️measuring external costs

⚫️size of the welfare loss

Question 1

Explain the label of the diagram showing a negative externality of production

Answer 1

⚫️upward sloping curve
➡️MSC=(MPC+MEC)
➡️MPC
➡️triangle between them - welfare loss arising from negative externality
➡️label between them- negative externality

⚫️downward sloping curve
➡️MSB=MPB

⚫️price- social optimum
➡️meets MSC=(MPC+MEC) & quantity social optimum

⚫️price- free market
➡️meets MPC & QFM

⚫️between QSO & QFM
➡️over production

Question 2

Use CO2 as an example of an imperfect knowledge as an evaluation of negative externalities

Answer 2

⚫️how much CO2
➡️responsible for global warming
➡️hugely debatable amount worlds leading scientists

Question 3

Why is measuring external cost a limitation of negative external costs

Answer 3

⚫️easy to calculate private costs
➡️but external costs are difficult to measure

➡️how do u know put monetary value
➡️on noise pollution caused by local factory

Question 4

Why is the size of the welfare lost a limitation of the negative externality

Answer 4

⚫️estimation due to difficulty measuring external cost

➡️difficult for getting
➡️right level of government Intervention
➡️to correct externality