Unit 17 Flashcards
Define consumption externalities/external benefits of consumption.
When do positive consumption externalities exist?
When do negative consumption externalities exist?
Consumption externalities exist where there is a difference between the social costs of consumption and the private costs of consumption.
If social benefits exceed private benefits, then there are positive consumption externalities.
If social benefits are less than private benefits, then there are negative consumption externalities.
What is an externality?
When does a negative externality or external cost exist?
When does a positive externality or external benefit exist?
An externality is the difference between social costs and benefits and private costs and benefits.
If net social cost (social cost minus social benefit) is greater than net private cost (private cost minus private benefit), then a negative externality or external costs exists.
If net social benefit is greater than net private benefit, then a positive externality of external benefit exists.
Define marginal social and private costs and benefits.
This is the social and private costs and benefits of the last unit either produced or consumed.
Define private cost and benefit.
The cost or benefit of an activity to an individual economic unit such a consumer or a firm.
What are production externalities/external benefits of production?
When do positive production externalities exist?
When do negative production externalities exist?
Production externalities/external benefits of production exist when the social costs of production are different from the private costs of production.
If social costs exceed private costs, then there are negative production externalities.
If social costs are less than private costs, there are positive production externalities.
Define social cost and benefit.
The cost or benefit of an activity to society as a whole.
