Externalities

Question 1

What are externalities?

Answer 1

Externalities are benefits or costs which involve third parties that aren’t directly involved in that economies activity. May be significant as infects economies which aren’t directly involved with other economies.

Question 2

What are the two types of externalities?

Answer 2

Positive externalities
Negative externalities

Question 3

What are the two types of externalities for both negative and positive externalities?

Answer 3

Positive production
Positive consumption
Negative production
Negative consumption

Question 4

What are the two definitions for externalities?

Answer 4

Pecuniary
Technological

Question 5

what are the four ways economies can address externalities?

Answer 5

Government intervention
Increase taxes and charges
Regulation
Market based solutions

Question 6

How can government intervention be used to combat externalities?

Answer 6

Via taxes, subsidies, regulation, creations of property rights and provisions of public goods can all help to correct distortions caused by externalities.

Question 7

How are taxes and subsidies used in addressing externalities?

Answer 7

taxes and charges will encourage firms to reduce externalities and subsidies incentivise activities in order to create positive activities.

Question 8

How can regulation be used to control externalities?

Answer 8

They may help to mandate negative externalities ie regulation on vehicle emissions. However these regulations can come with large administrative costs and may distort markets.