4.1.8.4 - positive and negative externalities

Question 1

What is an externality

Answer 1

A spillover effect on a third party, such that private costs and benefits will differ from the total social costs and benefits

Question 2

Which externalities effect the supply curve

Answer 2

Positive production externality
Negative production externality

Question 3

Which externalities effect the demand curve

Answer 3

Positive consumption externality
Negative consumption externality

Question 4

What is a deadweight loss triangle

Answer 4

• the net social impacts ( difference between the social benefits and the social costs)
• the triangle points from the externality to the socially optimum equilibrium

Question 5

How is a negative/positive/no production externality shown on a diagram

Answer 5

-ve: MSC < MPC
+ve: MPC < MSC
None: MPB = MSB

Question 6

How is a negative/positive/no consumption externality shown on a diagram

Answer 6

-ve: MPB > MSB
+ve: MSB > MPB
None: MSB = MPB