Logged out
Access All our Essays in an Instant
Swap your work for FREE access, or pay £4.99 for instant access
What are externalities?
Member rating:
(1 vote)
| Words:
| Submitted: Wed Aug 06 2003
Page Preview
On the left is an image preview of every page of this document, and below are the first 150 words with formatting removed:
what are externalities? Externalities are common in virtually every area of economic activity. They are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the full social costs and social benefits of production and consumption. The study of externalities by economists has become extensive in recent years - not least because of concerns about the link between the economy and the environment. PRIVATE AND SOCIAL COSTS Externalities create a divergence between the private and social costs of production. Social cost includes all the costs of production of the output of a particular good or service. We include the third party (external) costs arising, for example, from pollution of the atmosphere. SOCIAL COST = PRIVATE COST + EXTERNALITY For example: - a chemical...
To see the full version of this document, and 145,348 others
