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econ 1.3.2 - Coggle Diagram
econ 1.3.2
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internalising the externality - external costs paid by those who create them, eradicating the externality, bringing it to the SOP (polluter pays)
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externality - the impact faced by third parties or spill-over effects which occur as a result of an economic transaction. They can be positive (external benefits) or negative (external costs)
private cost - borne by an individual economic agent (producers, consumers, government) as a result of the production of a good or service
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negative (production) externality - usually caused by the overproduction of demerit goods/services. They exist when the social costs from an economic transaction are greater than the social benefits OR when social costs are greater than private costs
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positive externalities - usually from the underconsumption of merit goods. They exist when the costs to society are greater than the benefits to the private
