Chapter 10 Flashcards
Negative Externality
an activity whose side effects harm bystanders
Positive Externalities
activities whose side effects benefit bystanders
Marginal Private Costs
the extra costs that are paid for by the seller
Is a price change an externality?
NO
Marginal External Costs
The costs imposed on bystanders from one extra unit
Marginal Social Cost
the sum of the marginal private costs and marginal external costs
Marginal Private Benefit
the extra benefit that positive externalities create for bystanders.
External Benefit
the benefit that positive externalities create for bystanders
Marginal External Benefit
the extra external benefit enjoyed by bystanders from the extra unit
Marginal Social benefit
Marginal Private Cost = Marginal External Benefit
Where does the socially optimal outcome occur?
the quantity where marginal social benefit = marginal social cost
