1.8.4 Positive and negative externalities in consumption and production

Externalities

Consequences of an economic activity experienced by unrelated third parties.

Positive Externalities

Benefits experienced by third parties when a product is consumed or produced.

Negative Externalities

Costs incurred by third parties when a product is consumed or produced.

Divergence

A situation where private costs and benefits do not align with social costs and benefits.

Market Failure

A situation in which the allocation of goods and services is not efficient.

Marginal Social Benefit (MSB)

The total benefit to society from consuming one additional unit of a good.

Marginal Social Cost (MSC)

The total cost to society from producing one additional unit of a good.

Marginal Private Benefit (MPB)

The benefit received by the consumer from consuming one additional unit of a good.

Marginal Private Cost (MPC)

The cost incurred by the producer for producing one additional unit of a good.

Allocative Inefficiency

A situation where resources are not allocated optimally, leading to a welfare loss.

Welfare Loss

Reduction in social welfare due to inefficient allocation of resources.

Property Rights

Legal rights to use and manage resources.

Common Property Resources

Resources owned collectively by society, leading to overuse and exploitation.

Social Optimum Position

The level of output where MSB equals MSC, leading to maximum societal welfare.

Tax on Externalities

A financial charge imposed to reduce negative externalities by altering behavior.

Emissions Trading

A market-based approach to controlling pollution by providing economic incentives.

Pollution Permits

Licenses that allow a certain level of pollution or emissions.

Subsidies

Financial assistance provided by the government to encourage production or consumption.

Behavioural Economists

Economists who study the effects of social, cognitive, and emotional factors on economic decisions.

Market Equilibrium

The point where market supply equals market demand.

Overproduction

Production beyond the socially optimal level, leading to negative externalities.

Underproduction

Production below the socially optimal level, leading to positive externalities.

Transport Policy

Government strategies aimed at managing transport systems to reduce externalities.

Cycling Routes

Infrastructure that encourages cycling, contributing to positive externalities.

Carbon Emissions Tax

A financial charge imposed on companies based on their carbon dioxide emissions.

Health Problems

Negative health outcomes that arise from poor lifestyle choices or environmental factors.

Government Regulation

Laws and rules created by governments to control economic activities.

Negative Consumption Externalities

Loss of benefits to third parties due to consumer activities.

Positive Consumption Externalities

Benefits to third parties due to consumer activities.

Behavioural Economics

Field of economics that examines how psychological factors affect economic choices.

S1 and S curves

Supply curves that illustrate the differences between social costs and private costs.

Demand Curve

Graph showing the relationship between the price of a good and the quantity demanded.

Social Costs

Costs incurred by society as a whole from production or consumption.

Government Intervention

Actions taken by the government to correct market failures.

Exploitative Practices

Unsustainable use of resources leading to depletion and environmental damage.

Economics of Scale

Cost advantages gained by an increase in the level of production.

Consumer Behavior

The study of how individuals select and use products or services.

Resource Allocation

The distribution of resources among various projects or business units.

Market Mechanism

The process through which supply and demand interact to determine prices and quantity.

Social Benefit

The total benefit to society from an economic activity, including externalities.