externalities extended Flashcards
Q: What is the difference between private costs and social costs?
A: Private costs are borne directly by individuals involved in a transaction, while social costs include both private costs and external costs imposed on society.
Q: What is the difference between private benefits and social benefits?
A: Private benefits are received by individuals involved in a transaction, while social benefits include both private benefits and additional positive effects on third parties.
Q: How do externalities relate to public goods?
A: Public goods, which are non-excludable and non-rivalrous, often generate positive externalities, like national defense or clean air, benefiting society as a whole.
Q: What is the role of the government in correcting externalities?
A: The government can intervene to correct externalities by aligning private incentives with social welfare, using tools like taxes, subsidies, and regulations.
Q: What is a subsidy in the context of positive externalities?
A: A subsidy is financial support provided by the government to encourage production or consumption of goods with positive externalities, like education or renewable energy.
