Private Costs And Benefits, Externalities And Social Costs And Benefits Flashcards
Q: What are some private costs associated with car ownership?
A: Purchase of the vehicle, insurance, running costs (maintenance, fuel, depreciation), and road taxes.
Q: What are some private benefits of car ownership?
A: Convenience, satisfaction of running a privately owned car, and increased mobility and flexibility of lifestyle.
Q: What are some external costs of car ownership?
A: Congested traffic, air pollution causing asthma and heart attacks, increased transportation costs for goods, and reduced competitiveness of domestic firms.
Q: What are some external benefits of car ownership?
A: The motor car industry generates employment and income, creating hundreds of thousands of jobs in related industries like vehicle insurance, repair and maintenance, petrol retailing, and design industries.
Q: Define ‘Private Costs’.
A: Costs to a firm producing a good or service and to an individual consuming a product.
Q: Define ‘External Costs’.
A: Spillover effects on third parties that are not reflected in market prices
Q: Define ‘Social Costs’.
A: The total cost to society of an economic decision, obtained by adding private and external costs together.
Q: What is the difference between private and social costs?
A: Private costs are borne by the individual or firm involved, while social costs include both private and external costs.
Q: What are the two ways to eliminate market failure caused by externalities?
A: Improve production techniques or internalize external costs/benefits through government intervention.
Q: Define ‘Negative Externalities
A: Costs passed to third parties not involved in producing or consuming a good.
Q: Define ‘Positive Externalities
A: Benefits passed to third parties not involved in producing or consuming a good.
Q: Explain ‘Asymmetric Information’.
A: An imbalance in information between buyer and seller that can distort choices.
Q: Give an example of ‘Moral Hazard’.
A: Insured consumers taking greater risks because they know their claim will be covered by insurance.
Q: What is ‘Cost Benefit Analysis (CBA)’?
A: A method of appraising large-scale investment projects by estimating private and external costs and benefits to select the option with the highest net benefit.
Q: What are some criticisms of CBA?
A: High cost of undertaking CBA, difficulty in assessing monetary value of costs and benefits, and changing circumstances making initial projections inaccurate.
