Positive externalities

Question 1

Why would the gov provide free healthcare from NHS, subsidise tuition fees and eco friendly cars ?

Answer 1

The gov will encourage these people to use these goods. Most of the time it benefis the rest of society and the people around you.

Question 2

What are positive externalities ?

Answer 2

There are benefits which affect third parties outside the price mechanism. Positive effects on others

Question 3

What are positive consumption externalities ?

Answer 3

Consumption of goods which cause positive externalities

Question 4

What are examples of positive consumption externalities ?

Answer 4

Vaccinations as you and the rest of society will be benefitted. Healthy food as your less likely to feel ill saving NHS spending

Question 5

What are positive production externalities ?

Answer 5

Production of goods which cause production externalities

Question 6

What are examples of positive production externalities ?

Answer 6

Transport can help employees get to work on time which can benefit the company. Renewable energy like wind turbines can reduce climate change

Question 7

In positive consumption externalities, what is inside the price mech producers and consumers ?

Answer 7

There are private benefits and private costs inside the price mech

Question 8

In positive consumption externalities, what are outside the price mech ?

Answer 8

These are called positive externalities which we refer also to as external benefits. Indirectly affected by these positive externalities

Question 9

What does the positive consumption externality diagram show to the goverment ?

Answer 9

It shows the costs and benefits of consuming a good

Question 10

What type of benefit does Helga gain from buying a computer science degree ?

Answer 10

she gains private benefis such as the skills required for certain jobs, higher income.

Question 11

What happens when Helga then uses her technical skills to help technical firms build websites ?

Answer 11

There are external benefits to the technical firrms. They are outside the price mechanism

Question 12

In positive consumption externalities, what are the exceptions for social cost formula and why?

Answer 12

There is no external costs and only external benefits as it is positive externalities. Therefore social cost is equal to private cost

Question 13

How do you draw the MSB curve in the positive consumption externality diagram ?

Answer 13

The MSB curve is drawn vertically upwards from the MPB curve.

Question 14

What does the distance between the MSB and MPB curve show ?

Answer 14

This distance shows the external benefit

Question 15

What does the goverment look at to find out what is best for society ?

Answer 15

They look at society benefit and cost. They will look at MSB and MSC curve.

Question 16

What happens when marginal social cost is greater than marginal social benefit ?

Answer 16

there is welfare loss

Question 17

What does the potential welfare gain represent ?

Answer 17

It shows the under production of goods and how much potential welafre society could have gained from consuming more units

Question 18

What does the potential welfare gain represent ?

Answer 18

It shows the under production of goods and how much potential welafre society could have gained from consuming more units

Question 19

-What happens if consumers do not consider the external benefits ?

Answer 19

Under consumption

Question 20

What is the difference between the two positive consumption externality diagram ?

Answer 20

One has constant external benefit and the other (connected) one has increasingf external benefit

Question 21

What does the MSC and MSB point represent ?

Answer 21

Socially efficient equilibrium

Question 22

What is a merit good ?

Answer 22

It is a good or service who consumption causes external benefits and is considered to be under consumed