externalites Flashcards
spillover effect
The difference between private and social costs/benefits.
Marginal Social costs/ benefits
Societies costs and benefits from an additional unit
Marginal private cost/benefit
the private costs and benefits from an additional unit
Define Positive Externalities.
When the consumption or production of a good causes a benefit to a third party.
2 examples of a positive externalities.
- When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you are able to educate other people and therefore they benefit as a result of your education. (positive consumption externality)
- If you walk to work, it will reduce congestion and pollution; this will benefit everyone else in the city.
What is a Social Benefit?
Is a benefit to society.
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What is the link between Positive Externalities and Social Benefits?
With positive externalities, the benefit to society is greater than your personal benefit.
Which has a larger benefit? Social Benefits or Private Benefits?
Social Benefits > Private Benefits
What is the Social Benefit equation?
Social Benefit = Private Benefit + External Benefits
What does Positive Externalities lead to?
Under-consumption and market failure
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Government policies to increase demand for goods with positive externalities include:
- Rules and regulations – minimum school leaving age
- Increasing supply – government building of council housing to increase stock of good quality housing.
Subsidy to reduce price and encourage consumption, e.g. government subsidy for rural train services.
Define Negative Externalities.
When the consumption or production of a good causes a harmful effect to a third party.
Gice 3 examples of Negative Externalities.
- Loud music. If you play loud music at night, your neighbour may not be able to sleep.
- Pollution. If you produce chemicals and cause pollution as a side effect, then local fishermen will not be able to catch fish. This loss of income will be the negative externality.
- Congestion. If you drive a car, it creates air pollution and contributes to congestion. These are both external costs imposed on other people who live in the city.
Define Social Costs.
Social cost is the total cost to society; it includes both private and external costs.
With a negative externality which is mostly effected Social Or Private Cost?
Social Cost > Private Cost
