Topic 19-Negative Externalities

Question 1

Negative externalities

Answer 1

An uncompensated cost Imposed on third parties

Question 2

Private costs

Answer 2

Costs incurred by a first or second party directly involved in a market transaction

Question 3

Methods of government intervention

Answer 3

• regulation: laws e.g stopping people from smoking in certain areas
• extension of property rights
• indirect tax: tax goods to decrease external costs
• carbon offsetting: setting a limit of how much they’re allowed to produce
• landfill taxes: charging taxes for pollution

Question 4

Externalities

Answer 4

External costs/benefits to third parties who may not be involved in the initial transaction

Question 5

Negative externality diagram

Answer 5

Cost, benefit  |  
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                                                  Quantity