Chapter 9

Question 0

Negative externalities

Answer 0

External costs that have a bad effect on the lives of people who neither bought or sold the product.

Question 1

Positive externalities

Answer 1

External benefits that are experienced by third parties but paid for by someone else. The Gherkin has become an iconic feature of the landscape that adds interest to the London skyline for anyone who looks out over it.

Question 2

Cost benefit analysis (CBA)

Answer 2

Attempts to calculate the potential costs and benefits of a project to make a decision one way or the other. In theory, if the benefits outweigh the costs then the project goes ahead, if it’s the other way round, it doesn’t.

Question 3

Marginal social costs (MSC)

Answer 3

Te change in the total social cost to society as a whole when producing one additional unit, or taking one further action, in an economy.

Question 4

Marginal social benefit (MSB)

Answer 4

The change in the total social benefit to society as a whole when producing one additional unit, or taking one further action, in an economy.