Understanding Externalities in Economics

The video tutorial explains externalities in economics, focusing on how individual decisions based on private costs and benefits can diverge from societal welfare. It introduces internal and external costs and benefits, using examples like smoking and airport construction to illustrate negative and positive externalities in consumption and production. The tutorial concludes by categorizing the four types of externalities and emphasizing the importance of considering social costs and benefits for societal welfare.

What is the primary focus of economic agents when making decisions in market economies?

• Balancing social and private benefits

• Minimizing costs

• Maximizing profit and utility

• Maximizing societal welfare

What are internal costs and benefits also known as?

• Social costs and benefits

• Public costs and benefits

• External costs and benefits

• Private costs and benefits

In the example of the smoker, what does the smoker consider when deciding to smoke?

• Environmental impacts

• Government regulations

• Private benefits and costs

• Social benefits and costs

How are social costs calculated?

• By evaluating government policies

• By adding internal and external costs

• By considering only private costs

• By subtracting external costs from internal costs

What is a societal rule for determining if a product is beneficial?

• If social benefits exceed social costs

• If private benefits exceed private costs

• If internal costs are minimized

• If external benefits are ignored

What are negative externalities of consumption?

• External benefits of consuming a good

• Private benefits of consuming a good

• Private costs of consuming a good

• External costs of consuming a good

In the airport example, what are considered external benefits?

• Increased tourism and business

• Construction costs

• Environmental degradation

• Future revenue from flights

What are positive externalities of production?

• Private benefits of producing a good

• Private costs of producing a good

• External benefits of producing a good

• External costs of producing a good

How many types of externalities are there?

• Two

• Five

• Three

• Four

What is the main issue with externalities in decision-making?

• They are too costly to evaluate

• They are irrelevant to societal welfare

• They are not considered by private decision makers

• They are always beneficial