7.4 Private costs and benefits, externalities and social costs and benefits Flashcards
Externality
where the actions of producers or consumers give rise to side effects on third parties who are not involved in the action, sometimes referred to as spill over effects
Negative externality
where the side effects have a negative impact and impose costs to third parties
Positive externality
where the side effects have a positive impact and provide benefits to third parties
Social costs
the total costs of a particular action
Private costs
those costs that are incurred by an individual who produces a good or service
External costs
those costs incurred and paid for by third parties not involved in the action
Social benefits
the total benefits arising from a particular action
Private benefits
benefits that accrue to individuals who produce or consume a particular good
External benefits
benefits that are received by third parties not involved in the action
Cost benefit analysis (CBA)
a method for assessing the desirability of a project taking into account the costs and benefits involved
Shadow price
one that is applied where there is no recognised market price available
Deadweight loss
the welfare loss when due to market failure desirable consumption and production does not take place
