1.3.2 Externalities Flashcards

1
Q

What is an Externality?

A

An Externality is when there is an external impact on a third party not involved in the economic transaction.

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2
Q

What is a private benefit?

A

A private benefit for the consumer is what they actually get from consuming a good/service.

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3
Q

When do positive externalities occur?

A

Positive externalities occur when the social benefits of an economic transaction are greater than the private benefits.

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4
Q

What is the formula for social benefits?

A

Social benefits = Private benefits + External benefits

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5
Q

What is a positive externality?

A

a benefit received or transferred to a party as an indirect effect of the transactions of another party

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6
Q

What is a negative externality?

A

The damage not factored into the economic activity.

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7
Q

When do negative externalities occur?

A

When the social costs are greater than the private costs.

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8
Q

What is the formula for social costs?

A

Social costs = Private costs + External costs (negative externality)

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9
Q

What is a private cost?

A

A private cost for the producer/consumer is what they actually pay to produce/purchase a good/service.

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10
Q

What is the Marginal Private Cost (MPC)?

A

The cost of the next unit produced or consumed.

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11
Q

What is the Marginal Private Benefit (MPB)?

A

The benefit derived from the production of consumption of the next unit.

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12
Q

What are externalities a form of?

A

Externalities are a form of market failure.

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13
Q

Why is the market failing due to demerit goods?

A

Due to the over-provision of these goods/services as only the private costs are considered by the producers.

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