5.4 Micro Flashcards
What are externalities?
The costs and benefits to a third party created by an economic agent
What are negative externalities?
Costs to a third party that are not included in the price of the economic activity
What are positive externalities?
Benefits to a third party that are not included in the price of the economic activity
What are private costs?
The costs of consuming a product that are paid for by an individual or firms
What are social costs?
Costs that are paid for by society
What are private benefits?
Benefits to the firm or individual
What are social benefits?
Benefits to society
What are negative production externalities?
Occur when the activities of the producers lead to costs to the third party, that are not included in price
What happens when there are negative production externalities?
The firm is overproducing
What are positive production externalities?
Occur when the activities of the producers lead to benefits to the third party
What happens when there are positive production externalities?
There is a welfare gain
The firm will be underproducing due to high demand
What are negative consumption externalities?
When the activities of a consumer leads to loss of benefit to a third party
What happens when there are negative consumption externalities?
There is overconsumption
What are positive consumption externalities?
When the activities of consumers lead to benefits to a third party
What happens when there are positive consumption externalities?
There is underconsumption
