Externalities

Question 1

What is an externality

Answer 1

it is a cost or benefit that is experienced by a third party who is external to an exchange.

Question 2

What is a negative externality

Answer 2

a cost that is suffered by a third party as a result of an economic transaction

Question 3

examples of negative consumption externalities

Answer 3

• alcohol = increased crime
• waste = landfills/pollution
• smoking = second hand smoke

Question 4

examples of negative production externalities

Answer 4

• coal = pollution
• oil = spills
• pesticides = chemicals in food

Question 5

examples of positive consumption externalities

Answer 5

• health = healthy society
• school = educated society
• public transport = less pollution

Question 6

examples of positive production externalities

Answer 6

• beehives = helping environment
• research and development = vaccines
• flood defences = protected properties

Question 7

What is a positive externality

Answer 7

a benefit that is enjoyed by a third party as a result of an economic transaction

Question 8

What is fixed cost and variable cost

Answer 8

fixed - rent etc
variable - wages etc

Question 9

What is the link between all: MPB, MSB, MPC, MSC

Answer 9

MPC = MSC =S
MPB = MSB = D