Externalities: A Microeconomics Presentation
Temi Onabajo (10HKF)
Created on March 4, 2024
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Transcript
EXTERNALITIES
An Microeconomic Presentation
Temi x Daniel
04/03/2024
AS Economics Topic 1.3.2
1. Externalities: Defined
What is an Externality ?
An externality, in simple terms is basically an external consequence, positive or negative that effects third parties, outside the price mechanism. Externalies pose a very large importance as they can lead to market faliure.
Keywords:
Positive Externality, Negative Externality
'If you're in a system where you must make profit in order to survive. You are compelled to ignore negative externalities, effects on others'
- Noam Chomsky
2. Negative v Positive
Positive
Benefits that affect third parties outside the price mechanism
- The government financing NHS, Universities, Eco-Friendly things as they benefit the rest of the economy
- Positive Consumer Externality
- Positive Production Externalities
Negative
Negative effects the third parties outside the price mechanism
- The government may apply taxes on goods such as cigarettes and alcohol due to them being harmful, this disencourges usage
- Negative Consumption Externalities
- Negative Production Externalities
The governtment dont only consider the producers and co sumers, the take into accout the whole society
Social Benefits = Private Benefits + External Benefits (Positive)
Social Cost = Private Cost + External Cost (Negative)
3. Social Cost and Benefits
Key Equations to remember
Positive Externalities Diagrams
4. Diagrams
Did you know that around 35% or students do not use a diagram in thier economics A-level Paper
35%
Use diagrams in your analysis
5. Diagrams
Negative Externality Diagram
- As shown in the diagram, Supply is equal to the MPC (PMC = SMC)
- The area that is shaded in orange is classed as the Negative externality
- To be socially efficient, fewer factors of production should be allocated to producing this good/service
Thank you!
Externalities