2.8

Question 1

What is a negative externality

Answer 1

Negative externalities may exist, resources may be over allocated to products where production or consumption impose harmful effects on third parties outside the economic transaction for which no compensation is paid

Question 2

What is a positive externality

Answer 2

Positive externalities may exist, resources may be under allocated to products where production or consumption generate beneficial effects for third parties outside the economic transaction for which no compensation is paid

Question 3

What are demerit goods

Answer 3

Where market over allocate resources to products which are less beneficial to consumers than they believe, due to an associated information failure

Question 4

What are merit goods

Answer 4

Merit goods where markets under allocate resources to products which are more beneficial to consumers than they believe, due to an associated information failure

Question 5

What is marginal private costs (MPC)

Answer 5

The additional cost to the produces of producing an additional unit of output

Question 6

What is marginal external cost (MEC)

Answer 6

The additional cost to the third parties of producing an additional unit of output

Question 7

What is marginal social cost (MSC)

Answer 7

The additional to cost society from the production of an additional unit of a good/service

Question 8

Equation for marginal social cost

Answer 8

MSC = MPC+MEC

Question 9

What is marginal private benefit (MPB)

Answer 9

The additional benefit for the consumers from the consumption of an additional unit of a good/service

Question 10

What is marginal external benefit (MEB)

Answer 10

The additional benefit for third parties from the consumption of an additional unit of a good/service

Question 11

What is marginal social benefit (MSB)

Answer 11

The additional benefit for society from the consumption of an additional unit of a good/service

Question 12

Equation for MSB

Answer 12

MSB = MPB+MEB