1 - Market Failure - Neg Externalities

Question 1

Negative production externality

Answer 1

3rd party/spill over external cost arising from production of a good

Question 2

Negative consumption externality

Answer 2

3rd party/spillover external cost arising from consumption of a good

Question 3

How to calculate social benefit

Answer 3

Private benefit + external benefit

Question 4

What’s MPC

Answer 4

Marginal private cost
- all the costs of producing one or more unit of the good to the producer

Question 5

What’s MSC

Answer 5

Marginal social cost
- all the costs of producing one more unit of a good to society

Question 6

what’s MPB

Answer 6

Marginal private benefit
- all the benefits of consuming one more unit of the good to the consumer

Question 7

How to calculate social cost

Answer 7

Private cost + external cost

Question 8

What’s MSB

Answer 8

Marginal social benefit
- all the benefits of consuming one more unit to society

Question 9

Where is the social optimum when externalities exist?

Answer 9

Where MSC=MSB

Question 10

In a perf market where is allocative efficiency achieved?

Answer 10

P = MC

Question 11

When is there a negative consumption externality?

Answer 11

MSB<MPB

Question 12

Examples of neg externalities

Answer 12

• air,noise,water pollution
• environmental damage
• tobacco
• alcohol
• gambling
• obesity
• congestion

Question 13

Gov policies to help reduce neg externalities

Answer 13

• ban
• restriction
• legislation/regulations
• indirect tax
• info campaigns
• pollution permit trading schemes