Y1 24 - Positive Externalities Flashcards
Positive externalities in consumption
Benefits third parties as a result of actions of customers
Examples of positive externalities in consumption
-Healthcare
-Education
-Exercise/healthy eating
Positive externalities in consumption
Healthcare
Vaccinated against the flu third-party would be people and society benefit as there is less risk of getting the flu
Positive externalities and consumption
Education
Individuals who get educated well
Third-party is the rest of society benefit as well educated individuals will be more productive and earn higher incomes
This means they pay more tax for the governments and not revenue can be used to provide socially desirable things like infrastructure roads, hospitals, schools welfare et cetera
Positive externalities in consumption
Exercise/healthy eating
Exercise are consumed/worthy food is consumed
Third-party would be employees who benefit from high productivity of the workers
If they’re eating well and exercising, then they’re more likely to be at work more often producing more
Positive externalities in consumption graph
MSB > MPB
External benefit is positive as there is more positive impacts on third parties
Positive externalities in consumption
Social benefits exceeding social costs
More social benefit than social costs means we are not producing these extra units from Q1 to Q star
As a society are losing out on potential extra social benefits because all these units be on Q1 and up to Q star social benefit is higher than the social cost
By not producing those we are losing out on the net social benefit
Positive activities and consumption analysis
Individual consumers are ignoring the full social benefit of their actions only considering the private benefits because of self interest ignoring the external benefits
As a result, the market allocate resources of the private optimum which means there is an under consumption and under production compared to what we want in society, the social optimum
Result in the allocation of resources , allocative in efficiency and welfare loss
Two resources being allocated to this market
Positive externalities and production
Benefits third parties as a result of the actions of producers
Examples of positive externalities in production
-in Work training
-research and development
Positive externalities and production
In Work training
Producers could be offering high-quality work training schemes
Third parties could be other firms who are able to poach workers who are benefited from a work training schemes without having to offer in work training schemes themselves
The cost of productions
Can poach workers by paying slightly higher wage to paying the very high costs of Work training
Positive externalities in production
Research and development
Firms that engage in excellent research and development or innovation, with brand-new technologies
This can be copied by third-party firms who were able to copy the technology without having to spend a lot in research and development
The cost of production
Positive externalities and production graph
MSC < MPC
External costs are negative due to the third-party is benefiting which pulls down social costs
Q1 to Q star
Positive externalities and production graph
Q1 two Q star could’ve been produced more benefit than cost
By not producing them, we lose out on extra welfare
Positive externalities in production
Graph analysis
Individual producers or firms only consider their private costs and don’t consider their full social costs and ignore any external benefits to third-party firms
This occurs due to self interest
Means resources allocated at private optimum instead of social optimum resulting in a allocation of resources , allocative inefficiency and welfare loss
