Class notes
Lecture notes 4.3.2 Externalities
- Course
- Institution
These notes helped me get an A* in A Level Economics, covering all aspects of the specification, plus hints of real world context.
[Show more]
Seller
Follow
henryquinn
Content preview
4.3.2 Externalities The cost or benefit to a 3rd party due to an economic transaction
Can be positive or negative
Negative externalities are caused by demerit goods
o Alcohol & cigarettes are negative externalities
Positive externalities are caused by merit goods
o Education & healthcare
Private Costs
Certain costs of production
Rent, insurance, cost of machinery, raw materials
Determines how much the consumer will supply
Could refer to the market price
Marginal private costs are the cost to the firm of producing one extra unit
Social Costs
Social costs = private costs + external costs
MSC = MEC + MPC
Private Benefit
Firms revenue from selling a good
Social Benefits
Social Benefits = Private benefit + External benefits
External benefits are the difference between private and social benefits
External costs of production
Occur when a good is being produced and consumes
o Pollution
Ignoring these negative externalities leads to over provision and under pricing
At free market equilibrium with negative externalities there is an excess pf social cost over social
benefit
The market fails to account for negative externalizes
If the external cost is quantifiable, it could also be called economic costs
It is hard to find the economic costs of most negative externalities such as noise pollution
External benefits of production
A befit from the production or consumption of goods or services
o Healthier lives through vaccinations
MSB>MPB
Environmental externalities
Consumption of non-renewable energy causes negative externalities
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller henryquinn. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.32. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
78600 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now