1.8.4 Positive and negative externalities in consumption and production

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40 Terms

1

Externalities

Consequences of an economic activity experienced by unrelated third parties.

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2

Positive Externalities

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

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3

Negative Externalities

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

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4

Divergence

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

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5

Market Failure

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

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6

Marginal Social Benefit (MSB)

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

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7

Marginal Social Cost (MSC)

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

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8

Marginal Private Benefit (MPB)

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

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9

Marginal Private Cost (MPC)

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

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10

Allocative Inefficiency

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

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11

Welfare Loss

Reduction in social welfare due to inefficient allocation of resources.

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12

Property Rights

Legal rights to use and manage resources.

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13

Common Property Resources

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

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14

Social Optimum Position

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

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15

Tax on Externalities

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

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16

Emissions Trading

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

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17

Pollution Permits

Licenses that allow a certain level of pollution or emissions.

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18

Subsidies

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

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19

Behavioural Economists

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

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20

Market Equilibrium

The point where market supply equals market demand.

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21

Overproduction

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

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22

Underproduction

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

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23

Transport Policy

Government strategies aimed at managing transport systems to reduce externalities.

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24

Cycling Routes

Infrastructure that encourages cycling, contributing to positive externalities.

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25

Carbon Emissions Tax

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

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26

Health Problems

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

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27

Government Regulation

Laws and rules created by governments to control economic activities.

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28

Negative Consumption Externalities

Loss of benefits to third parties due to consumer activities.

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29

Positive Consumption Externalities

Benefits to third parties due to consumer activities.

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30

Behavioural Economics

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

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31

S1 and S curves

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

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32

Demand Curve

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

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33

Social Costs

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

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34

Government Intervention

Actions taken by the government to correct market failures.

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35

Exploitative Practices

Unsustainable use of resources leading to depletion and environmental damage.

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36

Economics of Scale

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

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37

Consumer Behavior

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

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38

Resource Allocation

The distribution of resources among various projects or business units.

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39

Market Mechanism

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

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40

Social Benefit

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

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