Positive and negative externalities

Question 1

define mpc

Answer 1

cost to an individual or firm of an economic transaction

Question 2

define mec

Answer 2

spillover cost to third parties of an economic transaction

Question 3

define msc

Answer 3

full cost to society of an economic transaction including private and external costs

Question 4

msc formula

Answer 4

mpc + mec

Question 5

define mpb

Answer 5

benefit to an individual or firm of an economic transaction

Question 6

define meb

Answer 6

the spillover benefit to third parties of an economic transaction

Question 7

define msb

Answer 7

the full benefit of an economic transaction including private and external benefits

Question 8

msb formula

Answer 8

mpb +meb

Question 9

define externalities

Answer 9

cost or benefits that spillover to third parties external to a market transaction

Question 10

define positive externalities

Answer 10

a positive spillover effect to third parties of a market transaction, social benefits exceed private benefits

Question 11

define negative externalities

Answer 11

a negative spillover effect to third parties of a market transaction, social costs exceed private costs

Question 12

positive externality in production

Answer 12

supply shifts right
s = mpc
s1 = msc

Question 13

positive externality in consumption

Answer 13

demand shifts right
s = mpc = msc
d1 = msb
d = mpb

Question 14

negative externality in consumption

Answer 14

demand shifts left
s = msc
d = mpb
d1 = msb

Question 15

define merit goods

Answer 15

a good that would be under-consumed in a free market as individuals dont fully percieve the benefits obtained from consumption

Question 16

define demerit goods

Answer 16

consumption can lead to negative externalities
social cost of consumption is higher than private costs
consumer may be unaware of the negative externalities that these goods create they have imperfect information