Micro - Externalities ✔️ Flashcards
What are Private Costs
The cost borne by either the producer or consumer directly involved in the economics transaction. For example, the cost to the producer of building an airport would include things such as the land, labour and capital required to make it.
What are External Costs
The cost borne by those that have no direct involvement in the economic transaction (third parties). For example, the construction of an airport may result in noise pollution, which is a negative impact on those who live nearby.
What are Social Costs
The cost to society as a result of the economic transaction made. This will take into account the private costs to the consumer or producer as well as the external costs to those not involved in the initial transaction. Social costs = private costs + external costs.
What are Private benefits
The benefit received from those involved directly in the economic transaction such as, the revenue gained by the producer once the airport opens. On the consumer level it may be the decision to exercise. The benefit for that individual would be a decreased risk of heart disease.
What are External Benefits
The benefit received from those who are not directly involved in the economic transaction. For example, the opening of an airport gives lots of job opportunities for those unemployed in the local area, giving them a stable income source. This will then result in an increase in the local standard of living.
What are Social Benefits
The benefit to society as a result of the economic transaction made. Social benefits = private benefits + external benefits.
