100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
9708 A2 Economics — Unit 1.2: Externalities £7.49   Add to cart
Quickly navigate to
Preview
  2.  
  3. CIE
  4.  
  5. Economics
  6.  
  7. Unit 1 - Basic economic ideas (9708)

Lecture notes

9708 A2 Economics — Unit 1.2: Externalities

 12 views  0 purchase
  • Institution
  • CIE

Unit 1.2: Externalities - Definitions - Positive consumption externality - Negative consumption externality - Positive production externality - Negative production externality - cost-benefit analysis

Preview 1 out of 4  pages

Document information

  • June 3, 2022
  • 4
  • 2021/2022
  • Lecture notes
  • Mr wong wai leong
  • All classes

Subjects

Connected book

book image

Book Title:

Author(s):

  • Edition:
  • ISBN:
  • Edition:

More summaries for

All for this textbook (5)

Written for

All documents for this subject (25)

Seller

avatar-seller
sonialee1

Content preview

Unit 1.2: Externalities

Introduction
 Externalities: cost or benefit to third party resulted from the production/ consumption of a
good.
 Private costs: costs that are borne by producers or consumers of a good.
 Private benefits: benefits enjoyed by the producers or consumers of a good.

 External costs: also known as negative externalities, are costs borne by third parties who are
neither the consumers or producers of the good.
o E.g. a person live with a smokers may suffered from second hand smoke.
 External benefits: also known as positive externalities. Are benefits or gain to third parties
resulting from production or consumption of a good.
o E.g. if firms are more productive & efficient, they have lower production costs,
which, in turn, allow it to charge lower prices to consumers. So indirectly, the
consumer benefits from such advances.

 Social costs = praise costs + external costs
 Social benefits= private benefits + external benefits
 Socially optimum level: marginal social cost =marginal social benefits

Positive consumption externalities
 Positive consumption externality: these are benefits to third party as a result of
consumption of a good or service by others.
 Key argument for the provision of merit goods by government.
 E.g. if you take a train, it reduces congestion for other travellers.




 In this case, the social marginal benefit (SMB) > private marginal benefit (PMB)
 Consumers are only interested in maximising their own benefits/ satisfaction, so they will
disregard negative externalities & consume at Q1 where demand = supply (private benefit =
private cost).
 However, this is socially inefficient because at Q1, social marginal cost < social marginal
benefit.
o there is under-consumption of the positive externality.
 Socially optimal level of output would occur at Q2 (optimal level of output) where SMC=SMB

Negative consumption externalities

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

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

Quick and easy check-out

You can quickly pay through credit card for the summaries. There is no membership needed.

Focus on what matters

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 sonialee1. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for £7.49. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

73216 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy revision notes and other study material for 14 years now

Start selling
£7.49
  • (0)
  Add to cart