Chapter 17: Externalities

  • Created by: Sin Heng
  • Created on: 21-11-19 13:26

Why do externalities arise?

They arise when there are differences between social benefits + costs and private benefits + costs. 

 What is the difference between private costs and social costs? 

Private costs are costs of an activity to individual economic units, like consumers, while social costs are the costs of an activity to individuals AND society as a whole. 


Why do negative externalities occur? And what is an example? 

They occur when social costs exceed private costs. An example is that factories contribute to a large percentage of pollution which is a negative cost to society. They also take up a lot of land which could be used for building houses or for farming. Nearby locals would be disturbed by noise pollution created by the factories as well. The manufacturers do not take responsibility of


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