4.1.8.4 ~ + / - Externalities in Consumption and Production

• Negative externalities:

  • Social cost is higher than the private cost
• Positive externalities:

  • Social benefit is higher than the private benefit
• Examples of positive production externalities:

  • Reforestation projects

  • Free-sharing of academic research
• Examples of negative production externalities:

  • Factory pollution

  • Waste from production
• Examples of negative consumption externalities:

  • Household waste

  • Noise pollution

  • Air pollution
• Examples of positive consumption externalities

  • Vaccinations to protect public health
• Marginal social cost (MSC) = Marginal private cost (MPC) + Marginal external cost (MEC)
• Negative externalities from production

  • Air pollution from factories

  • Pollution from fertilisers

  • Industrial waste

  • Noise pollution

  • Space junk

  • Methane emissions
• Which externality diagram is this?

  Negative consumption externality

  
• Which externality diagram is this?

  Positive consumption externality

  
• Which externality diagram is this?

  Positive production externality

  
• Which externality diagram is this?

  Negative production externality