Th1.3: Externalities Flashcards
1
Q
What is an externality?
A
the cost or benefit to a third party receives from an economic transaction outside of the market mechanism
2
Q
What do externalities lead to?
A
over or under production of goods, meaning resources aren’t allocated efficiently
3
Q
Name something with a negative externality
A
cars or cigarettes
4
Q
Name something with a positive externality
A
education or healthcare
5
Q
Why is it difficult to work out the size of an externality?
A
tends to be placed on value judgements, since it is difficult to monetise external cost
6
Q
Why are many externalities involved with information gaps?
A
people are unaware of the full implications of their decisions
