Y1 23 - Negative Externalities

Question 1

Negative externalities

Answer 1

Costs on third parties as a result of actions of separate agents

Question 2

Negative externalities in production

Answer 2

Costs on third parties as a result of the actions of the producers

Question 3

Third parties

Answer 3

The individuals or economic agents who have nothing to do with the activity or the transaction taken place
Nothing to do with production, but suffering a cost

Question 4

Examples of negative externalities in production

Answer 4

-Air pollution
-Resource depletion
-Resource degradation
-Deforestation

Question 5

Negative externalities in production
Air pollution

Answer 5

If firms are producing metal or textiles or chemicals and there is air pollution as a byproduct,
the local residence could be the third-party that suffer from respiratory problems and have greater risk of lung cancer

Question 6

Negative externalities in production
Resource depletion

Answer 6

If Resources are depleted maybe future generations are the third-party
They suffer from a loss of income and suffer from not being able to consume the goods and services made out of those resources

Question 7

Negative externalities in production
Resource degradation

Answer 7

A byproduct of waste is being produced and is dumped in less local river
Third parties could be the local residence again who may drink from that river or in the river or water in the river
This comes with greater risk of disease and greater risk of death

Question 8

Negative externalities and production
Deforestation

Answer 8

Third parties could be villages living near the forest to use the forest for food and water sources
Maybe they suffer due to greater risk of flooding

Question 9

Negative externalities in production graph

Answer 9

MSC > MPC
Marginal social cost is greater than marginal private cost as external costs are positive

Question 10

Equation for social costs

Answer 10

SC = PC + EC

Question 11

Which curve is going to have a difference in production?

Answer 11

The cost curve

Question 12

Social optimum

Answer 12

When MSC equals MSB
Q star and P star
Socially desirable

Question 13

Private optimum

Answer 13

When MPC equals MPB
Q1, P1

Question 14

Negative externalities in production, Q1

Answer 14

At Q1 the market is allocating resources at the wrong level
(allocation of resources)
Leading to an overproduction and over consumption making a welfare loss 

Question 15

Self interest in negative externalities of production graph

Answer 15

Firms are ignoring the full social costs because of self interest
Only concern about the private costs
As a result, the market allocates resources at Q1 and P1 which is the private optimum instead of the social optimum resulting in overproduction and overconsumption as a result

Question 16

Price on the negative externalities of production graph

Answer 16

Price is too low. P1 is only accounting for the private costs and not the social costs.
Which encourages more consumption of these goods and makes overproduction and consumption issues worse
And result is a miss allocation of resources and allocative inefficiency culminating in a welfare loss

Question 17

Negative externalities and consumption

Answer 17

Costs of third parties as a result of the actions of the customers

Question 18

Examples of negative externalities and consumption

Answer 18

-smoke
-Excessive alcohol
-Sugary drinks and fast food consumption

Question 19

Negative externalities and consumption
Smoking

Answer 19

Impact on third-party bystanders who inhale the passive smoke leading to a greater risk of lung cancer or suffer respiratory problems

Question 20

Negative externalities and consumption
Excessive alcohol

Answer 20

Excessive alcohol the third parties could be health services police services that have to deal with treating drunk people or dealing with crimes as a result of their actions

Question 21

Negative externalities of consumption
Sugary drinks and fast food consumption

Answer 21

Significant costs on health service is an extra costs of treatments as a result of obesity related issues
Could be a negative impact on employees have to suffer lost productivity or days missed from Work

Question 22

Negative externalities of consumption graph

Answer 22

MSB < MPB
This is because the external benefits are negative as a result of consumption

Question 23

Social benefits equation

Answer 23

Private benefits plus external benefits

Question 24

Negative externalities and consumption
Beyond Q-Star

Answer 24

Everything produced Bondi star is being produced at a higher social cost then social benefits which is a loss to society

Question 25

Negative externalities and consumption analysis graph

Answer 25

Consumers are ignoring the full social benefits of their actions only considering the private benefits due to self interest
Resulting in the market allocating resources of Q1 and P1 where MPC cuts MPB
This least over consumption and then overproduction of these goods and services and results in a allocation of resources
Too many resources being allocated to this market socially desirable resulting in allocative efficiency and a wealth lost society