3.4 Positive externalities in consumption and production

Question 1

When do positive externalities occur?

Answer 1

production and or consumption create external benefits on third parties outside of the market

Question 2

Explain the reltionship between the benefits of positive externalities?

Answer 2

• social benefit of consumption / production is greater than the private benefit

Question 3

What are some exmaples of external benefits?

Answer 3

• lower costs for other parties
• increased profits / revenues for other parties
• increased utility / satifaction from other parties

Question 4

What are positive externalities associated with?

Answer 4

merit goods and services

Question 5

Examples of positive production externalities?

Answer 5

• flood defence projects
• projects to reduce forestation
• apps that promote sharing of scarce resources
• research and devlopment
• bee-keeping and pollination

Question 6

Examples of positive consumption externalities?

Answer 6

• healthcare, vaccines
• education
• pest control
• usage of mass transport services
• youth clubs

Question 7

What are the three main solutions to reduce the underconsumption of goods/ services with positive externalities?

Answer 7

• government subsidy either to producer or consumer
• command and control techniques
• improved information flows to potential consumers

Question 8

Explain government subsidy either to producer or consumer?

Answer 8

• reduce private cost of consumption
• lower costs should cause expansion of demand
• subsidies to fund free entrance to museams
• providing free vaccines

Question 9

Explain command and control techniques as a solution to underconsumption of positive externalities?

Answer 9

• minimum school leaving age

- compulsory health immunisation programs

Question 10

Explain imporved info flows to consumers as a solution to underconsumption of positive externalities?

Answer 10

• health awareness programs

- goods with + externalities are often public goods