Econ 211 Chapter 10 Market Failures Externalities

externality

uncompensated impact of one person’s actions on the well-being of a bystander

buyers buy if

wtp is greater than p

sellers sell if

oppurtunity cost is less than p

private costs (producers)

costs borne by producer 

private benefits

benefits borne by consumers

external costs

cost that falls on bystander

social cost

all of the costs of production, including private cost and external cost

negative externalities

presence of an external cost (ex:pollution)

positive externalities

presence of an external benefit (example:showering)