Positive externalities

Question 1

when do positive externalities occur?

Answer 1

when production and/or consumption create external benefits on third parties outside of the market

Question 2

what do they create?

Answer 2

3rd party spillover benefits. social benefit of production/consumption is greater than the private benefit

Question 3

forms of external benefits

Answer 3

lower costs for other parties
increased revenues/profit for other parties
increased utility/satisfaction for other parties

Question 4

examples of positive production externalities:

Answer 4

-flood defence projects that benefit the whole community
-projects to reduce deforestation
-bee-keeping and pollination

Question 5

examples of positive consumption externalities:

Answer 5

-healthcare/ childcare
-education
-pest control
-usage of mass transport services instead of private motoring

Question 6

positive externalities in consumption graph

Answer 6

MPC=MSC- supply curve
MSB above MPB- demand curve
cause social benefit > private benefit

Question 7

positive externalities in production graph

Answer 7

MPB=MSB- demand curve
MPC above MSC- supply curve

Question 8

government intervention options with positive externalities

Answer 8

• government subsidy either to producer or consumer: reduce private cost of consumption or reduce cost of supply, lower costs should cause and expansion of demand
• command and control techniques

-improved information flows to potential consumers: graph- full information above partial information (reducing market failure via improved information