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Economics 11.4 > Externalities - Negative > Flashcards

Flashcards in Externalities - Negative Deck (11)
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When do negative externalities occur

when economic actions from either production/consumption create an external cost


what does this do to the market

market quantity will be greater than the optimal quantity and will cause price to be less than optimal price


how is driving to work a private descision

it is a private descision made by people by weighing up costs/benefits that accrue to them as individuals


describe the private cost/benefit of driving to work at peak time

cost of petrol, time taken for trip, convenience of having car at work, no need to walk to bus


describe the external cost/benefit of driving to work at peak time

imposes costs on other drivers: extra cars add to congestion experienced by all drivers creating an external cost on others
air pollution


describe the private cost/benefit of a factory polluting the world

factory have cheaper way of production (the atmosphere is free)


describe the external cost/benefit of factories polluting

the health of the people living in the area


On the graph what do D, Sp, Qm/Pm, Ss means
where is efficient (DRAW GRAPH)

D = benefits of consumption
Sp = private cost of production
Qm/Pm = if only private costs were taken into account
Ss = social supply curve
where Ss meets D creating Qe and Pe


does the market fail? is there DWL

yes - due to overproduction - market quantity > efficient quantity there is DWL (decrease in total surplus)


how can negative externalities be eliminated

if producers payed for external cost there would be no ext and no mkt failure


Social Cost = =

private cost + external cost