1.3.2b - negative externalities

negative externality meaning

the costs to society are greater than the private costs of production

which curve does negative externality always affect

the supply curve

examples of external costs [of production]

pollution, loss of nature, litter, etc

when we have a graph showing negative externalities, what do we do with the demand curve

for ease, we assume there are no externalitites (only one line, social = private)

what is on the x and y axis of an externalities graph

y = costs and benefits (valued as price)

x = quantity

show a negative externalities graph

over-allocation means social costs outweigh social benefits, since the market failed to consider externalities

what does a negative externality mean

because social costs outweigh social benefits, there is a loss of welfare to society

represented by the triangle in the middle of the graph