ECON 2.8-2.9: Market Failures

Question 1

Define marginal social benefit (MSB).

Answer 1

The extra benefit/utility to society of consuming an additional unit of output, including both the private benefit and the external benefit.

Question 2

Define marginal social cost (MSC).

Answer 2

The extra cost to society of producing an additional unit of output, including both the private cost and the external costs.

Question 3

What are negative externalities of consumption?

Answer 3

The negative effects that are suffered by a third party when a good or service is consumed.
e.g. cigarettes

Question 4

What are negative externalities of production?

Answer 4

The negative effects that are suffered by a third party when a good or service is produced.
e.g. plastic bags?

Question 5

What are positive externalities of consumption?

Answer 5

The beneficial effects that are enjoyed by a third party when a good or service is consumed.
e.g. vaccines

Question 6

What are positive externalities of production?

Answer 6

The beneficial effects that are enjoyed by a third party when a good or service is produced.
e.g. honey and wildflowers