Chapter 17 Flashcards
What are externalities?
The difference between social and private costs or social and private benefits
What’s the private cost?
A cost of an activity to an individual economic unit.
What’s the social cost?
The cost of an activity to both the individual economic unit and to the 3rd party as well.
What is a negative production externality and how can it be solved?
Social cost > Private Cost
solved by the imposition of tax
What is a positive consumption externality and how can it be solved?
Social benefit > Private benefit
solved by the imposition of a subsidy
What is a negative consumption externality and how can it be solved?
Social benefit < Private benefit
What is a positive consumption externality and how can it be solved?
Social cost < private cost
What are private benefits?
Benefits to the individual economic unit
What are social benefits?
Benefits to the individual economic unit and the3rd party
