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ExternalitiesNegative
Define key words
Market failure Private cost External cost social costs De merit goodsExternalities p.60 – AS text
Objectives
Define externalities
Explain negative externalities
Utilise key terms: private, external and social costs. De merit goods
Illustrate a negative externality
p.60 – AS text
p.60 – AS text
p.60 – AS text
Externalities
Defined Third party (or spill-over) effects arising from the
production and/or consumption of goods and service.
p.60 – AS text
Social costs not taken to account
Externalities can cause market failure if the price mechanism does not take into account the full social costs of production and consumption.
Does a road user pay for the pollution he permits?
Do binge drinkers pay for costs to policing city centres?
http://www.dailymail.co.uk/health/article-196793/Heavy-cost-binge-drinking.html
http://www.bbc.co.uk/news/10213337 http://www.bbc.co.uk/news/uk-england-
nottinghamshire-16698793
Market Failure This is when the free market
does not allocate resources efficiently.
De-Merit Goods Goods which society over-produces Goods and services provided by the
market which are not in our best interests! Tobacco and alcohol Drugs Gambling
p.60 – AS text
p.60 – AS text
Private Costs: The costs incurred by those who buy and those who produce the goods and services.
External Costs and Social Costs External cost
The cost of an economic decision to a third party
Social Cost The total cost of an action
(Private + external costs)
http://www.bbc.co.uk/news/uk-politics-15476670
Heathrow airport expansion plans result in further protests
What are the private, external and social costs of the expansion?
p.60 – AS text
Negative externalities
The social cost of an activity is greater than the private cost.
Soial cost is the true cost.
Explain how the below may have negative externalities; Chewing gum Illegal dumping Can you think of your own?
p.60 – AS text
Define these key words
Private cost External cost social costs De merit goodsExternalities
p.60 – AS text
Objectives
Define externalities
Explain negative externalities
Utilise key terms: private, external and social costs. De merit goods
Illustrate a negative externality (extension only..)
p.60 – AS text