Externalities
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Intros
Lessons
- Externalities Overview
- Externality Definition & Types
- Definition of Externality
- Positive & Negative Externality
- Positive & Negative Production Externalities
- Positive & Negative Consumption Externalities
- Private, External, Social Cost
- Private & Marginal Private Cost
- External & Marginal External Cost
- Social & Marginal Social Cost
- Marginal Social Cost (MSC) = MC + Marginal External Cost
- Effects of Negative Externalities
- Marginal External Cost & Marginal Social Cost
- Market Equilibrium
- Socially Optimal Output
- Overproduction of output
- Deadweight Loss from Overproduction
- Benefit, & Social Benefit
- Positive Externalities
- Private Benefit & Marginal Benefit
- Social Benefit & Marginal Social Benefit
- Effects of Positive Externalities
- Market Equilibrium
- Socially Optimal Output
- Underproduction of Output
- Deadweight Loss from Underproduction
Examples
Lessons
- Negative externalities create a ________, and positive externalities create a __________.
- Benefit, benefit
- Benefit, cost
- Cost, benefit
- Cost, Cost
- Which is not an example of negative consumption externality?
- Smoking cigarettes in public.
- Creating a product that creates pollution.
- Littering.
- Not cleaning up household wastes.
- None of the above.
- Questions Relating to Marginal Private/Social Benefits & Costs
The following table shows the marginal benefits that Sam and Devin receive from police officers on duty during work hours at their firm.
Police officers on duty (number of days) Marginal Benefit Sam Devin 1 25 30 2 20 25 3 15 20 4 10 15 5 5 10
If Sam and Devin are the only people at work, then graph the marginal social benefit. - The following table provides costs and benefits that occur from a firm production that pollutes a lake used by fishers.
Output of production Marginal cost Marginal external cost Marginal social benefit 0 0 0 150 1 5 15 125 2 15 30 100 3 30 45 75 4 50 60 50 5 75 75 25 - The following table provides costs and benefits in a society for a certain production.
Output of production Marginal social cost Marginal private benefit Marginal external benefit 0 0 30 45 1 5 25 40 2 10 20 35 3 15 15 30 4 20 10 25 5 25 5 20 - The follow table shows the data on a wildlife anti-extinction program.
Output of Fences Marginal Social Cost Benefit 1 3 15 2 6 12 3 9 9 4 12 6 5 15 3