nayana71
Badges: 3
Rep:
?
#1
Report Thread starter 4 years ago
#1
These diagrams come up every year on unit 1 and im confused i know what they are and what they mean i get confused when applying it to a diagram please could someone explain .
0
reply
TheHonestMisty
Badges: 3
Rep:
?
#2
Report 4 years ago
#2
(Original post by nayana71)
These diagrams come up every year on unit 1 and im confused i know what they are and what they mean i get confused when applying it to a diagram please could someone explain .

Positive Externalities
This occurs when the consumption or production of a good causes a benefit
to a third party. So for example:
• When you consume education you get a private benefit. But there are
also benefits to the rest of society, e.g. you are able to educate other
people and therefore they benefit as a result
• Therefore with positive externalities the benefit to society is greater
than your personal benefit. Social Benefit > Private Benefit
You would draw the positive externalities diagram to illustrate the above.


In a free market consumption will be at Q1 because private benefit =private cost.
• However this is socially inefficient because Social Cost < Social Benefit.
Therefore there is under consumption of the positive externality.
• Social Efficiency would occur at Q se where Social Cost = Social
Benefit.
• For example: In the real world without govt intervention there would be
too little education and public transport.



Negative Externalities:
• Negative externalities occur when the consumption or production of a
good causes a harmful effect to a third party.
• For example, if you play loud music at night your neighbour may not be
able to sleep.
• If you produce chemicals but cause pollution then local fishermen will
not be able to catch fish. This loss of income will be the negative
externality.
• Therefore with a negative externality, Social Cost > Private Cost
You would draw the positive externalities diagram to illustrate the above.

In a free market people ignore the external costs to others therefore
output will be Q1 where D=S.
• This is socially inefficient because at Q1: Social Cost > Social Benefit
• Social Efficiency occurs at Q se where Social Cost = Social Benefit
• E.g. In a free market there would be over consumption of cars and
cigarettes.
1
reply
nayana71
Badges: 3
Rep:
?
#3
Report Thread starter 4 years ago
#3
(Original post by TheHonestMisty)
Positive Externalities
This occurs when the consumption or production of a good causes a benefit
to a third party. So for example:
• When you consume education you get a private benefit. But there are
also benefits to the rest of society, e.g. you are able to educate other
people and therefore they benefit as a result
• Therefore with positive externalities the benefit to society is greater
than your personal benefit. Social Benefit > Private Benefit
You would draw the positive externalities diagram to illustrate the above.


In a free market consumption will be at Q1 because private benefit =private cost.
• However this is socially inefficient because Social Cost < Social Benefit.
Therefore there is under consumption of the positive externality.
• Social Efficiency would occur at Q se where Social Cost = Social
Benefit.
• For example: In the real world without govt intervention there would be
too little education and public transport.



Negative Externalities:
• Negative externalities occur when the consumption or production of a
good causes a harmful effect to a third party.
• For example, if you play loud music at night your neighbour may not be
able to sleep.
• If you produce chemicals but cause pollution then local fishermen will
not be able to catch fish. This loss of income will be the negative
externality.
• Therefore with a negative externality, Social Cost > Private Cost
You would draw the positive externalities diagram to illustrate the above.

In a free market people ignore the external costs to others therefore
output will be Q1 where D=S.
• This is socially inefficient because at Q1: Social Cost > Social Benefit
• Social Efficiency occurs at Q se where Social Cost = Social Benefit
• E.g. In a free market there would be over consumption of cars and
cigarettes.

Thank you very much!
0
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

Personalise

University open days

  • The University of Law
    Solicitor Series: Assessing Trainee Skills – LPC, GDL and MA Law - Guildford campus Postgraduate
    Wed, 29 Jan '20
  • Nottingham Trent University
    Postgraduate Open Day Postgraduate
    Wed, 29 Jan '20
  • University of Groningen
    Undergraduate Open Day Undergraduate
    Fri, 31 Jan '20

Why do you want to do a masters?

Great for my career (16)
36.36%
I really love the subject (13)
29.55%
I don't know what else to do (8)
18.18%
I can't get a job (1)
2.27%
My parents want me to (1)
2.27%
I don't know... I just do (5)
11.36%

Watched Threads

View All
Latest
My Feed