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IB Economics Outside Flashcards > Externalities > Flashcards

Flashcards in Externalities Deck (17)
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1
Q

externality

A

an unintended side effect that result from production or consumption of a good, affecting the third parties

2
Q

social optimum

A

MSB = MSC

3
Q

MSB

A

marginal social benefit

4
Q

MSC

A

marginal social cost

5
Q

MPC

A

marginal private cost

6
Q

MPB

A

marginal private benefit

7
Q

negative externality of production

A

harmful side effect to the society due to the production by a firm

8
Q

negative externality of consumption

A

a harmful side effect to the society due to the consumption by an individual

9
Q

internalise an externality

A

a government action to achieve socially desirable equilibrium for the economy

10
Q

how to internalise external cost for MPC?

A

per-unit tax (e.g. carbon tax) legislature regulation (tradeable permits - aka cap and trade)

11
Q

tradeable permit

A

rights to sell and buy actual or potential pollution in artificially created markets

12
Q

how to internalise external cost for MPB?

A

public service campaign tax complements subsidise substitutes

13
Q

where is true efficiency?

A

MSC = MSB not MPB = MPC

14
Q

positive externality of production

A

beneficial side effect to the society due to the production by a firm

15
Q

postive externality of consumption

A

beneficial side effect to the society due to the consumption by an individual

16
Q

how to encourage positive externalities?

A

subsidies government provisions advertising

17
Q

free rider

A

person who gains spillover benefit from positive externality