2.3.1 Externalities

• Externalities are the costs or benefits that affect a third party not directly involved in an economic transaction.market
• Match the type of externality with its example:

  Positive Externality ↔️ Vaccination benefits the community

  Negative Externality ↔️ Pollution from a factory
• Externalities are the costs or benefits that affect a third party not directly involved in an economic transaction.market
• Negative externalities result in underproduction of goods.

  False
• Noise from construction is an example of a negative externality.


  True
• Externalities cause a discrepancy between private and social costs or benefits.
• What is the discrepancy caused by externalities between private and social costs or benefits called?

  Market failure
• Education is an example of a positive externality that often leads to underproduction
• What are externalities defined as in economic terms?

  Costs or benefits affecting third parties
• Vaccination is an example of a positive externality because it benefits both the individual and the community.


  True
• Externalities occur when private costs or benefits differ from social costs or benefits
• Steps to correct market failure caused by externalities:

  1️⃣ Identify the type of externality

  2️⃣ Analyze its impact on society

  3️⃣ Implement government intervention (e.g., subsidies or taxes)

  4️⃣ Monitor the results
• What is the socially optimal level of production affected by externalities called?

  Market equilibrium
• Match the solution to externalities with its example:

  Regulation ↔️ Emission standards for factories

  Taxation ↔️ Carbon tax on fossil fuels

  Subsidies ↔️ Financial support for solar energy panels
• Externalities can only be negative.

  False
• Education is an example of a positive externality.


  True
• Match the type of externality with its example:

  Positive Externality ↔️ Education leading to a skilled workforce

  Negative Externality ↔️ Pollution affecting local health
• Externalities are a type of market failure.


  True
• Positive externalities are beneficial effects on third parties not directly involved in an economic transaction.education
• Match the type of externality with its definition:

  Positive Externality ↔️ Beneficial impact on third parties

  Negative Externality ↔️ Harmful impact on third parties
• Externalities can lead to overproduction or underproduction of goods.

  True
• Positive externalities lead to overproduction compared to the socially optimal level.

  False
• Match the type of externality with its real-world example:

  Positive Externality ↔️ Government subsidies for renewable energy

  Negative Externality ↔️ Environmental regulations on factories
• Externalities represent a type of market failure where private costs or benefits differ from social costs or benefits
• What is the effect of positive externalities on third parties?

  Beneficial
• What is an example of a negative externality caused by pollution from production?

  Air pollution
• Education is underproduced due to its positive externalities.


  True
• Regulations are government rules to control external costs or benefits