In free markets, what does the price normally reflect?
Just the private costs and benefits of goods and services
1 of 10
What are social costs?
They include both external and private costs
2 of 10
What costs do negative externalities produce?
Social costs that are higher than private costs
3 of 10
How can the market fail to take into account all the costs involved?
By not making the consumer pay for the full social cost of production
4 of 10
What types of benefits are provided by the government
Social benefits
5 of 10
Why is there an over-consumption of products with negative externalities?
Market prices are based on private costs and ignore external costs, which means the prices of products will be lower than they should be, causing them to be over-consumed
6 of 10
What is the positive impact on society of charging prices that do not reflect social costs?
The people who benefit are the producers and consumers of the product as profit will be higher for producers and consumers will get more for their money
7 of 10
What is the negative impact on society of charging prices that do not reflect social costs?
Negative externalities have a negative impact on society as people will suffer from pollution which will cause excess demand for public service for those suffering from the negative externalities
8 of 10
What is the Polluter Pays Principle?
A tax can be placed on the product that creates the negative externality so then the tax revenue can pay for measures to reduce the scale of the problem which internalises the external cost
9 of 10
What is the problem with the Polluter Pays Principle?
It can be hard to link externalities to the consequences that people experience
10 of 10
Other cards in this set
Card 2
Front
What are social costs?
Back
They include both external and private costs
Card 3
Front
What costs do negative externalities produce?
Back
Card 4
Front
How can the market fail to take into account all the costs involved?
Back
Card 5
Front
What types of benefits are provided by the government
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