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AQA AS Micro-Economics > Externalities > Flashcards

Flashcards in Externalities Deck (23)
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1
Q

Deadweight loss

A

The loss in producer and consumer surplus due to an inefficient level of production perhaps resulting from market failure or government failure.

2
Q

External benefit

A

A benefit to a 3rd party agent arising from production and/or consumption.

3
Q

External cost

A

External costs are those costs faced by a third party for which no appropriate compensation is forthcoming. Identifying and then estimating a monetary value for air and noise pollution is a difficult exercise - but one that is important for economists concerned with the impact of economic activity on our environment.

4
Q

Externalities

A

Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid.

5
Q

Marginal external benefit (MEB)

A

Benefit to third parties from the consumption of extra unit of output.

6
Q

Marginal external cost (MEC)

A

Cost to third parties from the production of an additional unit of output.

7
Q

Marginal private benefit (MPB)

A

Benefit to the consumer of consuming an extra unit of output.

8
Q

Marginal private cost (MPC)

A

Cost to the producing firm of producing an additional unit of output.

9
Q

Marginal social benefit (MSB)

A

Total benefit to society from consuming an extra unit.

10
Q

MSB formula Marginal social benefit

A

MSB = MPB + MEB.

11
Q

Marginal social cost (MSC)

A

Total cost to society of producing an extra unit of output.

12
Q

MSC formula Marginal social cost

A

MSC = MPC + MEC.

13
Q

Negative externality

A

Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid. This causes social costs to exceed private costs.

14
Q

Net social benefit

A

A measurement of the net impact of an investment project found by estimating the social costs and benefits. Net social benefit may be considered by a government when deciding which project(s) offers the best potential return for society.

15
Q

Positive externality

A

Positive externalities exist when third parties benefit from the spill-over effects of production/consumption e.g. the social returns from investment in education & training or the positive benefits from health care and medical research.

16
Q

Private benefit

A

The rewards to individuals, firms or consumers from consuming or producing goods and services. Also known as internal benefit.

17
Q

Private cost

A

Costs of an economic activity to individuals and firms. Also known as internal costs.

18
Q

Social benefit

A

The benefit of production or consumption of a product for society as a whole.

19
Q

Social benefit formula

A

Social benefit = private benefit + external benefit.

20
Q

Social cost

A

The cost of production or consumption of a product for society as a whole.

21
Q

Social cost formula

A

Social cost = private cost + external cost.

22
Q

Social effciency

A

The socially efficient output is where Social Marginal Cost (SMC) = Social Marginal Benefit (SMB).

23
Q

Spill-over effects

A

External effects of economic activity, which have an impact on outsiders who are not producing or consuming a product – these can be negative (creating external costs) or positive (creating external benefits).