NEGATIVE EXTERNALITIES IN PRODUCTION AND CONSUMPTION Flashcards
What are negative externalities in production
costs to 3rd parties as a result of actions of producers
IN NEGATIVE EXTERNALITIES of production , producers are producing somehing and 3rd parties are
suffering the costg
what is a 3rd party - production terms
economic agents that have nothing ot do with the activity/transaction taking place but suffering costs as a rsult of production
give 4 examples for where 3rd parties suffer as a result of production
Air Pollution
Resource Depletion
give 4 examples for where 3rd parties suffer as a result of production
Air Pollution
Resource Depletion
Resource Degradation
Deforestation
explain how air pollution is a negative externality and affects 3rd parties
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
explain how resource depletion effects 3rd parties
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
what is resource depletion
consumption of a resource faster than it can be replenished
explain how deforestation effects a 3rd party
3rd party villagers living near and use forest for food/water sources suffer from a greater risk of flooding
in terms of a negative externality What is greater MSC and MPC
msc > mpc
explain why in a negative externality of production msc greater than mpc
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
since were working with negative externalitirs in production what curve moves
cost/supply
how would you draw graph for negatove externalities in producgtion
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)
why does the marekt allocate reosurces at mpb = mpc - production ?
because thats the private optimum
where is the allocativley efficient and social optimum
MSC = MSB
why is the market allocating resources at the wrong level / why is ther a misallocation of scarce resources
theres a difference between SC & PC
why is the market allocating resources at the wrong level / why is ther a misallocation of scarce resources in production
theres a difference between SC & PC
why do we have a welfare loss in -ve x of production
there’s an overproduction and overproduction
if we’re not maxing net social benefit what is not occuring
allocative efficiency is not occuring here
why is net social beenfit not occuring reference to Q*
all units produced beyond q* have a greater cost than sb
ANALYSIS -VE EXTERNALITY GRAPH -
self interest
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
analysis of -ve externality graph
price (too low)
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
what is a negatove externality in consumption
costs to 3rd parties as a result of actions of consumers
give 3 examples of negatove externalities in consumption
smoking
excessive alchool
excessive sugary drinks and fast food
