externalites

Question 1

spillover effect

Answer 1

The difference between private and social costs/benefits.

Question 2

Marginal Social costs/ benefits

Answer 2

Societies costs and benefits from an additional unit

Question 3

Marginal private cost/benefit

Answer 3

the private costs and benefits from an additional unit

Question 4

Define Positive Externalities.

Answer 4

When the consumption or production of a good causes a benefit to a third party.

Question 5

2 examples of a positive externalities.

Answer 5

• When you consume education you get a private benefit. But there are also benefits to the rest of society. E.g you are able to educate other people and therefore they benefit as a result of your education. (positive consumption externality)
• If you walk to work, it will reduce congestion and pollution; this will benefit everyone else in the city.

Question 6

What is a Social Benefit?

Answer 6

Is a benefit to society.

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Question 7

What is the link between Positive Externalities and Social Benefits?

Answer 7

With positive externalities, the benefit to society is greater than your personal benefit.

Question 8

Which has a larger benefit? Social Benefits or Private Benefits?

Answer 8

Social Benefits > Private Benefits

Question 9

What is the Social Benefit equation?

Answer 9

Social Benefit = Private Benefit + External Benefits

Question 10

What does Positive Externalities lead to?

Answer 10

Under-consumption and market failure

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Question 11

Government policies to increase demand for goods with positive externalities include:

Answer 11

• Rules and regulations – minimum school leaving age
• Increasing supply – government building of council housing to increase stock of good quality housing.
  Subsidy to reduce price and encourage consumption, e.g. government subsidy for rural train services.

Question 12

Define Negative Externalities.

Answer 12

When the consumption or production of a good causes a harmful effect to a third party.

Question 13

Gice 3 examples of Negative Externalities.

Answer 13

• Loud music. If you play loud music at night, your neighbour may not be able to sleep.
• Pollution. If you produce chemicals and cause pollution as a side effect, then local fishermen will not be able to catch fish. This loss of income will be the negative externality.
• Congestion. If you drive a car, it creates air pollution and contributes to congestion. These are both external costs imposed on other people who live in the city.

Question 14

Define Social Costs.

Answer 14

Social cost is the total cost to society; it includes both private and external costs.

Question 15

With a negative externality which is mostly effected Social Or Private Cost?

Answer 15

Social Cost > Private Cost

Question 16

Define a positive externality?

Answer 16

A favourable spill over effect on third parties arising from production and consumption

Question 17

What do positive externalities impose on third parties?

Answer 17

External benefits

Question 18

What are private costs?

Answer 18

the cost to the firm from the production of a good or service

Question 19

What are external costs?

Answer 19

The costs borne by a third party or to society as a whole

Question 20

What are social costs?

Answer 20

Social cost = Private cost + external cost

They are the full costs to society of the production or consumption of any good.

Question 21

What are private benefits?

Answer 21

They are benefits that accrue directly to the decision makers

Question 22

What are external benefits?

Answer 22

They are the benefits accrued to a third party or to society as a whole

Question 23

What is the social benefit?

Answer 23

Social benefit = Private benefits + External benefits


The full benefits to the society of production or consumption of any good

Question 24

When does a negative externality arise?

Answer 24

When the private costs of an economic activity is greater than the social costs

Question 25

When does a positive externality arise?

Answer 25

When the social benefit is greater than the private benefit