Marginal Private Benefit and Externalities

Flashcards covering key concepts of marginal private benefit, positive externalities, and their implications.

What is the relationship between marginal social benefit and marginal private benefit in the case of positive externalities?

Marginal social benefit is greater than marginal private benefit.

What is a classic example of positive externality?

Research and development.

How does hand washing create a positive externality?

It benefits others by reducing the likelihood of spreading diseases.

What type of curve represents marginal private benefit for hand washing?

A downward sloping marginal benefit curve.

What does point A represent in the context of hand washing?

The market solution that only considers costs and benefits to the individual washing their hands.

What is the social optimal number of hand washes represented by?

The quantity q_s on the graph.

What is the significance of the triangle ABC in the graph?

It represents the deadweight loss due to under-consumption of hand washes.

What happens to the marginal social benefit curve in the presence of positive externalities?

It is located above the marginal private benefit curve.

What effect do positive externalities have on the market equilibrium quantity?

They create an inefficiently low equilibrium quantity.

Why should individuals wash their hands according to the lecture?

To account for the external benefits to society.