Externalities Flashcards
1
Q
What are external costs?
A
External costs are negative effects of production or consumption that are imposed on third parties and are not reflected in market prices.
2
Q
What are some examples of external costs?
A
Examples include:
- Pollution caused by factories.
- Traffic congestion leading to delays.
- Environmental damage, such as deforestation or habitat destruction.
3
Q
What are external benefits?
A
External benefits are positive effects of production or consumption that benefit third parties and are not captured in market prices.
4
Q
What are some examples of external benefits?
A
Examples include:
- Education improving workforce productivity.
- Healthcare reducing the spread of diseases.
- Vaccinations protecting both individuals and the wider community through herd immunity.
5
Q
What is the formula for social costs?
A
Social costs = Private costs + External costs
6
Q
What is the formula for social benefits?
A
Social benefits = Private benefits + External benefits
