Positive Externalities

Cards (16)

What is a positive externality?
A benefit to a third party.
What is an external benefit?
A benefit to a third party.
What is a private benefit?
A benefit to the consumer.
What equals social benefit?
External benefit+Private benefit=Social benefit
What is Marginal Private Benefit (MPB)?
Benefit to the consumer of consuming an additional unit of output.
What is Marginal External Benefit (MEB)?
Benefit to third parties from the consumption of an extra unit of output.
What is Marginal Social Benefit?
Total benefit to society from consuming an extra unit.
MPB+MEB=MSB
Describe positive externality in terms of social benefits and private benefits?
Social benefits>Private benefits
Does positive externality relate to consumption or production on the diagram?
Consumption
On the positive externality diagram, where is Q1 and Q2 on the y-axis?
Q1 is on the right and Q2 is on the left
On the positive externality diagram, what does the gap between Q1 and Q2 represent?
Underconsumption
On the positive externality diagram, what lines meet to form the social optimum equilibrium?
Marginal Social Benefit = Marginal Social Cost
On the positive externality diagram, does the social optimum equilibrium meet at Q1 or Q2?
Q1
On the positive externality diagram, what lines meet to form the free market equilibrium?
Marginal Private Benefit = Marginal Private Cost
On the positive externality diagram, does the free market equilibrium form on Q1 or Q2?
Q2
On the positive externality diagram, is there a welfare gain or a welfare loss?
Welfare gain

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