NEGATIVE EXTERNALITIES IN PRODUCTION AND CONSUMPTION

Question 1

What are negative externalities in production

Answer 1

costs to 3rd parties as a result of actions of producers

Question 2

IN NEGATIVE EXTERNALITIES of production , producers are producing somehing and 3rd parties are

Answer 2

suffering the costg

Question 3

what is a 3rd party - production terms

Answer 3

economic agents that have nothing ot do with the activity/transaction taking place but suffering costs as a rsult of production

Question 4

give 4 examples for where 3rd parties suffer as a result of production

Answer 4

Air Pollution
Resource Depletion

Question 5

give 4 examples for where 3rd parties suffer as a result of production

Answer 5

Air Pollution
Resource Depletion
Resource Degradation
Deforestation

Question 6

explain how air pollution is a negative externality and affects 3rd parties

Answer 6

thorugh producing metals , textiles and chemicals

air pollution is a by product

local residents are the 3rd party suffering from respiratory probles + a greater risk of cancer

Question 7

explain how resource depletion effects 3rd parties

Answer 7

future gen suffer from a loss of income and not being able to consume goods and services that may have been made from those reosurces

Question 8

what is resource depletion

Answer 8

consumption of a resource faster than it can be replenished

Question 9

explain how deforestation effects a 3rd party

Answer 9

3rd party villagers living near and use forest for food/water sources suffer from a greater risk of flooding

Question 10

in terms of a negative externality What is greater MSC and MPC

Answer 10

msc > mpc

Question 11

explain why in a negative externality of production msc greater than mpc

Answer 11

SC= PC + EC

we have external costs as a result of production - they become real

EC are +Ve meaning SC are greater and higher than PC

Question 12

since were working with negative externalitirs in production what curve moves

Answer 12

cost/supply

Question 13

how would you draw graph for negatove externalities in producgtion

Answer 13

y axis = price /costs/benfits
x axis = quantity

draw MPC then draw MSC behind / higher as theyre greater

then draw D=MPB=MSC curve

draw equilibrium at mpc = mpb demand and mpc w p & q

draw another equilibrium at social optimum (mpb = msc) w pq

shade in triangle towards social optimum ( diff between social cost and benefit)

Question 14

why does the marekt allocate reosurces at mpb = mpc - production ?

Answer 14

because thats the private optimum

Question 15

where is the allocativley efficient and social optimum

Answer 15

MSC = MSB

Question 16

why is the market allocating resources at the wrong level / why is ther a misallocation of scarce resources

Answer 16

theres a difference between SC & PC

Question 17

why is the market allocating resources at the wrong level / why is ther a misallocation of scarce resources in production

Answer 17

theres a difference between SC & PC

Question 18

why do we have a welfare loss in -ve x of production

Answer 18

there’s an overproduction and overproduction

Question 19

if we’re not maxing net social benefit what is not occuring

Answer 19

allocative efficiency is not occuring here

Question 20

why is net social beenfit not occuring reference to Q*

Answer 20

all units produced beyond q* have a greater cost than sb

Question 21

ANALYSIS -VE EXTERNALITY GRAPH -

self interest

Answer 21

fimrs ignore the full social cost due to self interest , tehy only consider private costs

as a result the marekt allocates scarce resources @p1 and q1 the private optmum instead of the social optimum of q*

the result is overproduction and overconsumption shown by Q* to q1

Question 22

analysis of -ve externality graph

price (too low)

Answer 22

price is too low @p1 as oppoed to p*

p1 only accounts for PC and not teh full sc which includes EC

making the whole problem worse as as it encourages more consumption of goods( inverse law of demand means lower price more people able and willing to buy )

fuelling overproduction and overconsumption making the issue of -ve externalities worse

end result is a misallocation of scarce resources and allocative inefficiency - culinating the welfare loss

Question 23

what is a negatove externality in consumption

Answer 23

costs to 3rd parties as a result of actions of consumers

Question 24

give 3 examples of negatove externalities in consumption

Answer 24

smoking

excessive alchool

excessive sugary drinks and fast food

Question 25

expain who smoking is a negatove externality of consumption

Answer 25

makes a cost to 3rd party bystanders who inhale passive smoke

whihc increases their risk of suffering from long cancer /respiratry problems

Question 26

explain why excessive alchoohol is a negative externality in consumption

Answer 26

the 3rd party are the public and health servidces that have to dela w treating them/crimes that are a result of their drunk action

Question 27

explain why excessive sugary drink /fast food consumption is a -ve externality

Answer 27

significant cost of 3rd party health service
3rd party impact on employers as got to suffer the cost of lost productivyt/dasy missed for work

Question 28

which curve do we move in -ve ex of consumption

Answer 28

benefits (demand curve

Question 29

explain what happens to the sb equatino and the whole msb malarky

Answer 29

eb are negatove as a reuslt of consumption making PB greater than SB

Question 30

DRAW TEH GRAPH FOR NEGATOVE XTERNALITIES OF CONSUMPTION

Answer 30

y axis = price/costs/benefits
x axis = quantity

DRAW MSB LOWER THAN MPB
DRAW S=MPC=MSC upwards

two equilibriums - p* Q* at social optimum of msb = msc

other at p1 q1 where s = mpb

Question 31

in -ve ex of consumption where foes the markets allocates carce reosurces

compared to where the society would

Answer 31

mkt allocates resources at the private optimum q1 p1
whereas society like resources to be allocated at social optimum msb = msc Q* and p*

Question 32

why so there a misallocaiton of resources of in -ve ex of consumption

Answer 32

too much being produced at q1 so thers a over consumption and over production

Question 33

allocative inefficiency =

Answer 33

welfare loss

Question 34

allocative inefficney = welfare loss highlight this on the graph

Answer 34

triabgle pointing to social optimum

Question 35

in -ve ex of consumption why is there a welfare loss

Answer 35

@q1 social costs are higher thna social benefiots

so all units produced beyonf q* are being produced @ a higher SC than SB - So we got a loss to society

Question 36

analysis of -ve externalities of consumption grpah

Answer 36

consumers ignore full SB of actions only, considering PB due to self interst and the endresult is mkt allocaitng scarce reosurces @q1 and P1 - private optimum where

mpc and mpb cut leading to an overconsumption and overprocution of g

as a result theres a misallocation of resources - toomany resources are being alloated to this mkt - shown by overproduciton and consumption from q* to q1

than is socially desrible resulting in allocative inefficiency and a welfare loss to society