Externalities

Question 1

State 3 examples of negative production externalities

Answer 1

Air pollution from factories
Industrial waste
Noise pollution

Question 2

define Negative Externalities

Answer 2

The product and/or consumption of a good or service exerts a negative effect on a third party independent of the transaction

Question 3

Define External Benifits

Answer 3

An external benefit is a benefit gained by an individual or firm as a result of an economic transaction but where they are not directly involved in the transaction. External beneficiaries are collectively called ‘third parties’

Question 4

Explain one scenario of external benefits

Answer 4

if a business spends money on improving the landscape around its premises, local residents may benefit from an increase in house prices as the area looks more presentable. e.q.

Question 5

What is the impact of education on the society and yourself

Answer 5

When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you can educate other people and therefore they benefit as a result of your education.

Question 6

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List the external benefits of education?

Answer 6

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Lower government health, welfare, and prison costs​

Strengthened democracy, human rights, political stability, and social capital​

Less crime and poverty​

Environmental benefits​

Better international competitiveness​

New ideas and diffusion of technology.

Question 7

How is Health care a positive externality

Answer 7

You benefit from others being healthy because it reduces the likelihood of you catching their illness (assuming it’s contagious).​

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You benefit from a positive externality of others receiving health care. ​

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Your health care costs are also affected by others choosing to purchase health care.​

Question 8

Why do vaccines create external benefits

Answer 8

Vaccines create external benefits, because when one person gets a flu shot that reduces not only the probability that they’re going to get the flu but the probability that other people will get the flu as well because the person who gets the flu shot is less likely to transmit the flu to other people.​

Question 9

what is the formula of social costs

Answer 9

Social costs = private costs + external costs​

Social costs = total cost to society​

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Private costs = faced / paid directly by the producer or consumer​

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External cost = negative externalities​

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The firm does not pay for the external costs it creates – therefore it over-produces in a free market creating a misallocation of resources (market failure)​

Question 10

What are the private and external costs of farming

Answer 10

Private costs: Cost of land, labour, seed, crops, vaccines, livestock, capital, fertilizer​

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External costs: Pollution, visual pollution, run-off from fertilizer​

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