21) Externalities

Question 1

What is an externality?

Answer 1

Externalities are additional costs or additional benefits for third parties to the transaction

Question 2

What are positive and negative externalities?

Answer 2

If the externality is a benefit, we call it a positive externality.
If the externality is a cost, we call it a negative externality

Question 3

What are examples of negative production externalities?

Answer 3

1) Air pollution
2) Fertilizer pollution
3) Industrial waste / noise pollution
4) Methane emissions

Question 4

What are examples of negative consumption externalities?

Answer 4

1) Driving a car
2) Smoking
3) Household waste
4) Tourist litter
5) Gambling addiction
6) Alcohol addiction
7) Poor diet

Question 5

What are examples of positive production externalities?

Answer 5

1) Flood defence
2) University R&D
3) Reduced deforestation
4) Beekeeping / Honey production

Question 6

What are examples of positive consumption externalities?

Answer 6

1) Vaccines
2) Education
3) Pest control
4) Public transport
5) Apprentice training
6) Childcare
7) Healthcare

Question 7

What is private cost and benefit?

Answer 7

The cost or benefit of an activity to an individual economic unit such as a consumer or a firm

Question 8

What is social cost and benefit?

Answer 8

The cost or benefit of an activity to society as a whole