Negative Externalities Flashcards
What is a negative externality
A negative externality is a cost to the third party who is not involved in the productions purchasing or consumption of A product
What are the two types of negative externalities
- negative externality in production
- negative externality in consumption
What is a negative externality in production
A negative externality in production is a cost to the third party due to the actions of the producers
Give an example of negative externality in production
- air pollution -> leading to health problems, respiratory problems
- resource depletion -> using up lots of water -> lack of water for residents
- resource degradation
- deforestation
What is the formula for a negative externality in production
MSC > MPC
Draw a negative externality diagram
Check
Where is q1 and p1
The private market point where there is an overproduction
Where is the socially optimum point (production)
P2 and q2
- higher price and lower output
What is the analysis for a negative externality in production
- producers are acting out of self interest and ignoring the social costs they are causing
- this is leading to an over production
- price is also low so consumption is high
And a misallocation of resources
What is a negative externality in consumption
A negative externality in consumption is a cost to the third part due to the actions of consumers
What is the formula for a negative externality in consumption
Msb<mpb
Private beenfit is more than benefit
What is an example of negative externality in consumption
- second hand smoke -> health probelms -> healthcare being clogged up
- drunken people on streets
- fast food leading to illnesses and having a negative impact of firms as less present
Draw a negative externality in consumption
