Ch33 Externalities

Front

What is a negative externality?

Back

A negative externality occurs where the side effects of an activity have a negative or damaging impact on third parties, involving unexpected costs to them.

Front

What is a positive externality?

Back

A positive externality is where the side effects of an action provide unexpected benefits to third parties.

Front

Who is considered a third party?

Back

A third party is someone not directly involved in the decision-making.

Front

What are private costs?

Back

Private costs are paid for by an individual consumer or firm that produces a good or service.

Front

What are external costs?

Back

External costs are incurred and paid for by a third party not involved in the action.

Front

What are social costs?

Back

Social costs are the total costs (private costs plus external costs) of an action.

Front

What are private benefits?

Back

Private benefits are benefits that are received by a consumer or to a firm that produces a good or service.

Front

What are external benefits?

Back

External benefits are those received by a third party not involved in the action.

Front

What are social benefits?

Back

Social benefits are the total benefits (private benefits plus external benefits) of an action.

Front

What is a production externality?

Back

A production externality is a spillover effect as a result of production.