Chapter 33 - Private costs and benefits, externalities and social costs and benefits. Flashcards
Externality
Where the actions of a producer or consumer give rise to side effects on others not directly involved in the action.
Third-Party
Those not directly involved in the decision-making.
Negative Externality
Where the side effects of an action have a negative impact that imposes costs on third parties.
Positive Externality
Where the side effects of an action have a positive impact that provides benefits to third parties.
Private Costs
Those Costs that are incurred by a consumer or by the firm that produces a good or service.
Private Benefits
Those benefits that increase over time to the consumer or to the firm that produces a good or service.
External Costs
Those costs incurred and paid for by a third party not involved in the action.
External Benefits
Those benefits that are received by a third party not involved in the action.
Social Costs
The total costs of a particular action.
Social Costs = Private Costs + External Costs
Social Benefits
The total benefits of a particular action.
Social Benefits = Private Benefits + External Benefits
Deadweight Welfare Loss
The loss in welfare arising from an inefficient allocation of resources.
Negative Consumption Externality
Negative Consumption Externalities are costs to the third parties arising from consumption of goods and services.
Positive Consumption Externality
A Positive Consumption Externality occurs when consuming a good cause a positive externality to a third party.
Negative Production Externality
Negative Production Externalities are costs to the third parties arising from production of goods and services.
Positive Production Externality
A positive production externality is the positive effect an activity imposes on an unrelated third party.
