Revision on Externalities
•
9 gostaram•127,602 visualizações
Externalities are spill-over effects from production and consumption where no compensation is paid. They can be positive or negative. Negative production externalities occur when the social costs of production exceed private costs, such as pollution from factories. This leads to overproduction and deadweight loss. Positive consumption externalities exist when social benefits exceed private benefits, like public education, resulting in underconsumption. Government intervention may be needed to correct market failures from externalities and achieve social optimum. Externalities must be evaluated on their net social impact rather than in isolation.
Recomendados
Mais conteúdo relacionado
Mais procurados
Mais procurados (20)
Destaque
Semelhante a Revision on Externalities
Semelhante a Revision on Externalities (20)
Mais de tutor2u
Mais de tutor2u (20)
Último
Último (20)
Revision on Externalities
- 1. Externalities in Production and Consumption A Level Economics Revision - April 2017
- 2. What are externalities? • Externalities are spill-over effects from production and consumption for which no appropriate compensation is paid • Externalities lie outside the initial market transaction / price • Externalities cause market failure if the price mechanism does not take account of the social costs and benefits of production and consumption • Externalities can be positive and/or negative Negative Production Externalities Negative Consumption Externalities Positive Production Externalities Positive Consumption Externalities
- 3. Typology of Externalities Production – Negatives Consumption - Positives Where the marginal social cost of production is higher than the marginal private cost. Where the marginal social benefit of consumption is higher than the marginal private benefit. Example (Negative) Example (Positive) Air, land, river and noise pollution which results from factory emissions Space junk Community-access defibrillators External benefits from museums
- 4. Negative production externalities Air pollution from factories Pollution from fertilizers Industrial waste Noise pollution Collapsing fish stocks Methane emissions When answering any question on negative externalities – consider whether the external costs are significant and if so, whether they can be measured and valued accurately Marginal social cost > marginal private cost
- 5. Negative production externalities MPB= MSB MPC Benefit, Cost Quantity supplied Q1 Q2 A C MSC External cost
- 6. Negative production externalities MPB= MSB MPC Benefit, Cost Quantity supplied Q1 Q2 A C MSC
- 7. Negative production externalities MPB= MSB MPC Benefit, Cost Quantity supplied Q1 Q2 A B C MSC Over-production Social optimum is where MSB = MSC
- 8. Negative production externalities MPB= MSB MPC Benefit, Cost Quantity supplied Q1 Q2 Deadweight loss of social welfare A B C MSC Over-production Social optimum is where MSB = MSC
- 9. Positive consumption externalities MPB MSB MPC = MSC Benefit, Cost Quantity consumed Q1 Q2 A C Under-consumption
- 10. Positive consumption externalities MPB MSB MPC = MSC Benefit, Cost Quantity consumed Q1 Q2 A C B Under-consumption Social optimum is where MSB = MSC
- 11. Positive consumption externalities MPB MSB MPC = MSC Benefit, Cost Q1 Q2 Deadweight loss of social welfare A C B Under-consumption Quantity consumed Social optimum is where MSB = MSC
- 12. Typology of Externalities (2) Production – Positives Consumption - Negatives Where the marginal social cost of production is lower than the marginal private cost. Where the marginal social benefit of consumption is lower than the marginal private benefit. Example (Negative) Example (Positive) Lower transport costs for local firms following construction of new roads. The impact on family life / social cohesion of problem gambling or drug addiction Especially for AQA and OCR students
- 13. Negative consumption externalities MSB MPB MPC = MSC Benefit, Cost Quantity consumed Q1 Q2 A C B
- 14. Negative consumption externalities MSB MPB MPC = MSC Benefit, Cost Quantity consumed Q1 Q2 Deadweight loss of social welfare A C B Social optimum is where MSB = MSC
- 15. Negative consumption externalities Vehicle pollution Household waste Noise pollution from neighbours Air pollution from smokers Traffic congestion Gambling addiction Litter from tourists Spillover costs from obesity
- 17. Positive production externalities MPB MPC Benefit, Cost Quantity consumed Q2 Q1 A C B MSC Deadweight loss of social welfare Social optimum is where MSB = MSC
- 18. Evaluating externalities • Externalities lie outside of market transactions • Involve a divergence of private & social cost/benefit • Some externalities are trivial • Some are significant e.g. related to climate change • Most goods and services have both positive and negative externalities • E.g. . If a government encourages consumption of a good with positive externalities, it will also create some negative externalities • Key is to focus on the net social benefit or cost
- 19. Private optimum higher than social optimum MPB MSC Benefit, Cost Quantity consumed Q2 Q1 C A MPC MSB Social optimum is where MSB = MSC
- 20. Private optimum higher than social optimum MPB MSC Benefit, Cost Quantity consumed Q2 Q1 B A MPC MSB Net loss of social welfare There are NET negative externalities in this market) i.e. it is costing society more to produce these units than society is valuing these units. A: Where MPB=MPC B: Where MSB = MSC
- 21. Look out for our revision video analysing and evaluating policies designed to cut carbon emissions
- 22. Externalities in Production and Consumption A Level Economics Revision - April 2017
Notas do Editor
- Deadweight loss triangle = area of allocative inefficiency