Externalities Flashcards
1
Q
What is a social cost
A
The private cost plus the external cost
2
Q
When does market failure occur in a free market
A
When the price mechanism will only take into account the private costs and benefits, but not the external costs and benefits
3
Q
In a free market consumers and producers only consider..
A
Their private costs and private benefits- ignoring any social costs or benefits (MPC = supply and MPB = demand)
4
Q
Where is the equilibrium point in a free market
A
MPC = MPB
5
Q
Where is the socially optimum level of output in a free market
A
MSC = MSB (includes the external costs and benefits to society)
