Negative Externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no compensation is paid. E.g. Traffic
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Private Cost
A cost on the producer or consumer directly involved in the transaction
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Social Cost
A const of consuming or producing a good/service that is paid for by society.
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Graph
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Graph analysis
Due to the negative externality the MPB>MSB. At the Free markewill operates at Q1 where MPB=MPC because conumers are rational and will only consider their own benefits and costs. The social optimum is at Q2 where the MSB=MSC, so there is an over cons
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Other cards in this set
Card 2
Front
A cost on the producer or consumer directly involved in the transaction
Back
Private Cost
Card 3
Front
A const of consuming or producing a good/service that is paid for by society.
Back
Card 4
Front
k
Back
Card 5
Front
Due to the negative externality the MPB>MSB. At the Free markewill operates at Q1 where MPB=MPC because conumers are rational and will only consider their own benefits and costs. The social optimum is at Q2 where the MSB=MSC, so there is an over cons
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