Externalities Flashcards
Externalities
The costs and benefits to a third party created by economic agents when undertaking their activity
What can the cost or benefit of these exrernalities be?
Negative or positive externalities
Negative externalities
Cost to a third party that are not included in the price of economic activity
Positive externalities
Benefits to a third party that are not included in the price of the economic activity
Why do negative externalities arise?
As a result of the divergence between private costs and social costs
Private costs
Costs of consuming and producing goods and services that have to be paid for by the third party
Social costs
Cost of comsuming or producing goods or services that are paid for by society
When do we have negative externalities?
When social costs are greater than private costs
When do positive externalities arise?
As a result of divergence between private benefits and social benefits
Private benefits
Benefits of comsuming or producing the good or service that are recieved by an economic unit
Social benefit
Benefits of comsuming or producing goods or services that are received by an economic
