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Economics 11.4 > Externalities - Positive > Flashcards

Flashcards in Externalities - Positive Deck (10)
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1

what is an externality

a side effect/consequence of economic activity created by the production/consumption of a good

2

why are these SIDE effects not direct effects

the market only captures thr private costs/benefits of production/consumption - but their are external effects

3

what happens when these externalities exist

market outcome won't be efficient
market will fail to set the correct price and fail to produce the socially optimal quantity

4

what is a positive externality

creates an external benefit that spills over from the private transaction to the thrid party

5

who benefits (1st, 2nd,3rd) from a pos externality using the example of a gym membership (a gym membership gives consumers the right to use equip and get expert advice to improve fitness

1st and 2nd - buyer and seller
3rd : members employers (healthy work is more productive)

6

who benefits (1st, 2nd,3rd) from a pos externality using the example of a HECS loan (student has to pay to enter uni, it can be payed up front or loan)

1st and 2nd - student (higher salary with degree) and uni (get money)
3rd - society gets a skilled and productive workforce

7

On the demand curve what do Dp and Ds represent and where is the efficient equilibrium (DRAW GRAPH)

Dp = private demand curve representing private benefit
Ds = social demand curve representing overall benefit
eql = Ds and Supply

8

why is a positive externality still failing the market

the market fails in the presence of a pos externality due to underproduction (quantity < efficiency quantity)
if mkt considered ext = no mkt fail

9

is there dead weight loss

yes - there is a decrease in total surplus

10

social benefit =

private benefit + external benefit