Externalities

• Negative externality: External cost (eg. pollution)
• Positive externality: External benefit (eg. vaccination)
• Non-rival in consumption (public goods): Can be consumed by many individuals at the same time.
• Non-excludable (public goods): Difficult to prevent non-payer from using it eg. a lighthouse
• External benefit: Benefit enjoyed by third parties
• Private cost: Cost paid by consumers/producers of an economic activity
• Social benefit: Sum of private benefit and external benefit
• External cost: Cost inflicted on third parties
• Negative externality: A cost to society that is not reflected in the price of a good or service.
• Social cost: Sum of private cost and external cost
• Positive externality: A situation where the benefits of a good or service are greater than the costs.
• Private benefit: The benefit enjoyed by consumers/producers of an economic activity.
• Market failure occurs when there is no market mechanism to ensure that all costs and benefits are taken into account, resulting in under-production (negative externality) or over-production (positive externality).
• The government may use taxes or subsidies to correct market failures caused by negative externalities.
• Free market equilibrium: A situation in which the price of a good or service is set by the forces of supply and demand.
• Addition is when you add two numbers together.