Externalities - unit 2 Flashcards
1
Q
External costs are:
A
The costs incurred by third parties and not included in the price i.e. pollution
2
Q
What are private costs?
A
Private costs are costs to the individual or firm of their economic activity e.g. labour and capital costs
3
Q
What are social costs?
A
Private costs plus external costs (total cost to society)
4
Q
External benefits:
A
Benefits enjoyed by third part e.g. increased employment
5
Q
Private benefits =
A
Benefits to the individual or firm e.g. profit
6
Q
Social benefits =
A
Private benefits + external benefits
7
Q
What is Market failure?
A
The inability of the market system to allocate resources efficiently
8
Q
What policies can be used to address external costs and benefits?
A
Subsidies, education, legislation, controlled pricing in certain markets
