externalities

Question 1

What are ‘spillover’ effects?

Answer 1

These are the effects that one situation or problem has on another situation

Question 2

What are ‘emissions’?

Answer 2

gases or other substances that are discharged into the air

Question 3

Who are the ‘third parties’?

Answer 3

someone who is not one of the two main people or organizations involved in an agreement or legal case

Question 4

What are ‘external costs’?

Answer 4

negative spillover effects of consumption or production - they affect third parties in a negative way

Question 5

What are ‘external benefits’?

Answer 5

positive spillover effects of consumption or production - they bring benefits to third parties

Question 6

What are ‘private costs’?

Answer 6

Costs of economic activity to individuals and firms

Question 7

What are ‘social costs’?

Answer 7

costs of economic activity to society as well as the individual or firm

Question 8

What are ‘private benefits’?

Answer 8

rewards to third parties of an economic activity, such as consumption or production

Question 9

What are social benefits?

Answer 9

benefits of an economic activity to society as well as to the individual or firm

Question 10

What’s a ‘pollution permit’?

Answer 10

It’s a government-issued document that gives a business the right to discharge a certain quantity of a polluting material into the environment

Question 11

What are the external costs of production?

Answer 11

External costs of production are costs that are incurred by third parties due to production activities.

Question 12

Give examples of third parties affected by external costs.

Answer 12

Third parties can include individuals, organizations, property owners, or resources like rivers

Question 13

How does education benefit the wider society according to the notes?

Answer 13

Education can lead to higher productivity, lower unemployment, improved household mobility, and higher rates of political participation, benefiting the wider society.

Question 14

Explain how healthcare consumption can benefit third parties.

Answer 14

Healthier individuals can contribute more effectively to economic output and pay taxes, benefiting the wider society.

Question 15

How are social benefits calculated?

Answer 15

Social benefits = private benefits + external benefits

Question 16

How can taxation reduce external costs of production?

Answer 16

Taxation can increase production costs, leading to higher prices and reduced demand, thereby reducing pollution

Question 17

How can subsidies help reduce external costs?

Answer 17

Subsidies can incentivize firms to reduce external costs or increase external benefits by offering financial rewards.

Question 18

What is one challenge of using government subsidies?

Answer 18

One challenge is the opportunity cost, as the money spent on subsidies could potentially be spent more effectively elsewhere

Question 19

How does government regulation aim to reduce external costs?

Answer 19

Government regulation imposes laws on businesses to reduce pollution and other external costs of production

Question 20

What is one problem associated with using pollution permits?

Answer 20

One problem is that governments may issue too few or too many permits, affecting the effectiveness of pollution control.

Question 21

How does the consumption of vaccinations create external benefits?

Answer 21

Vaccinations not only benefit the individual by preventing disease but also benefit others by reducing the likelihood of disease spread.

Question 22

Explain the concept of externalities in economics and provide examples.

Answer 22

• 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.

Question 23

How can government policies such as taxation and subsidies be used to address externalities?

Answer 23

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.