Externalities

Question 1

What are externalities?

Answer 1

Externalities refer to spillover effects resulting from production and consumption.

Question 2

What are some examples of positive externalities in consumption and production?

Answer 2

Positive externalities in consumption include vaccinations, healthcare, sun cream, and public transport. Positive externalities in production include training and research and development.

Question 3

What are some examples of negative externalities in consumption and production?

Answer 3

Negative externalities in consumption include cigarettes, alcohol, and fast food.
Negative externalities in production include chemical manufacturing, driving cars, deforestation, and burning fossil fuels, traffic congestion

Question 4

What are external costs?

Answer 4

External costs refer to negative effects to a third party from the production or consumption of a good.

Question 5

How can external costs be reduced?

Answer 5

External costs can be reduced through
taxation
subsidies
fines
pollution permits
regulations