Postive Externalities Flashcards
1
Q
Positive externalities
A
- Occurs when the consumption or production of a good causes a benefit to a third party
- Caused by the under consumption or under provision which is a market failure
- Marginal social benefit > marginal private benefit
- Private producers and consumers, disregard societal benefits
2
Q
Positive externalities in consumption
A
- Under consumption of a good/ service
3
Q
Positive externalities in production
A
- Benefit to 3rd parties as a result of the actions of producers
- MPC > MSC
- Therefore producers under produce as they have self interest
- Misallocation of resources
4
Q
Positive externality in consumption diagram
A
5
Q
Positive externalities - consumption
A
- SMB > MPB
- In a free market, consumption will be at Q1 (where PMB = PMC) because demand = supply
- However, this is socially inefficient because at Q1 \
6
Q
Positive externality in production diagram
A
