3.2 Externalities Flashcards
1
Q
What kinds of externalities are there?
A
1) Negative production
2) Negative consumption ( X diagram)
3) Positive consumption
4) Positive production ( X diagram)
2
Q
What are externalities?
A
Spill-over effects on a third party from a transaction
3
Q
How to calculate externalities?
A
1) Shadow pricing
2) Compensation value (cost of putting right)
3) Revealed preference (how much people pay to avoid externality)
4
Q
Examples of negative production externalities?
A
- Air pollution
- Noise pollution
- Industrial waste
5
Q
Negative production externality diagram?
A
6
Q
Examples of negative consumption externalities?
A
- Vehicle pollution
- Smoking
- Effects of obesity
7
Q
Examples of positive consumption externalities?
A
- Education
- Health programmes
- Public libraries
8
Q
Positive consumption externality diagram?
A
8
Q
Examples of positive production externalities?
A
- Open source software
- Spillover from R&D
