externalities Flashcards
What are ‘spillover’ effects?
These are the effects that one situation or problem has on another situation
What are ‘emissions’?
gases or other substances that are discharged into the air
Who are the ‘third parties’?
someone who is not one of the two main people or organizations involved in an agreement or legal case
What are ‘external costs’?
negative spillover effects of consumption or production - they affect third parties in a negative way
What are ‘external benefits’?
positive spillover effects of consumption or production - they bring benefits to third parties
What are ‘private costs’?
Costs of economic activity to individuals and firms
What are ‘social costs’?
costs of economic activity to society as well as the individual or firm
What are ‘private benefits’?
rewards to third parties of an economic activity, such as consumption or production
What are social benefits?
benefits of an economic activity to society as well as to the individual or firm
What’s a ‘pollution permit’?
It’s a government-issued document that gives a business the right to discharge a certain quantity of a polluting material into the environment
What are the external costs of production?
External costs of production are costs that are incurred by third parties due to production activities.
Give examples of third parties affected by external costs.
Third parties can include individuals, organizations, property owners, or resources like rivers
How does education benefit the wider society according to the notes?
Education can lead to higher productivity, lower unemployment, improved household mobility, and higher rates of political participation, benefiting the wider society.
Explain how healthcare consumption can benefit third parties.
Healthier individuals can contribute more effectively to economic output and pay taxes, benefiting the wider society.
How are social benefits calculated?
Social benefits = private benefits + external benefits
How can taxation reduce external costs of production?
Taxation can increase production costs, leading to higher prices and reduced demand, thereby reducing pollution
How can subsidies help reduce external costs?
Subsidies can incentivize firms to reduce external costs or increase external benefits by offering financial rewards.
What is one challenge of using government subsidies?
One challenge is the opportunity cost, as the money spent on subsidies could potentially be spent more effectively elsewhere
How does government regulation aim to reduce external costs?
Government regulation imposes laws on businesses to reduce pollution and other external costs of production
What is one problem associated with using pollution permits?
One problem is that governments may issue too few or too many permits, affecting the effectiveness of pollution control.
How does the consumption of vaccinations create external benefits?
Vaccinations not only benefit the individual by preventing disease but also benefit others by reducing the likelihood of disease spread.
Explain the concept of externalities in economics and provide examples.
- Externalities are the spillover effects of production or consumption that affect third parties not directly involved in the economic activity.
- Examples include pollution from factories affecting residents and the positive impact of education on society through a more skilled workforce.
How can government policies such as taxation and subsidies be used to address externalities?
Taxation can be used to internalize external costs by increasing the price of goods with negative externalities, discouraging their consumption. Subsidies can incentivize activities with positive externalities, such as education and healthcare, by lowering their costs.
