Negative externalities Flashcards
1
Q
What are negative externalities of production ?
A
The cost to 3rd parties as a result of the actions of producing a good or service
3rd parties suffer the costs of its production
2
Q
What are some examples of negative production externalities ?
A
Air pollution from factory , Resource depletion , Deforestation
3
Q
How would I draw a negative production externality diagram ?
A
MSC > MPC
4
Q
How would I explain a negative production externality diagram ?
A
Firms ignore full social cost of actions - only consider Private cost , so they allocate resources at private optimum instead of social optimum . This leads to over production and over consumption . P1 only considers PC and P star considers social costs involved
5
Q
A
