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Economics 1.3.2 - Coggle Diagram
Economics 1.3.2
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social costs
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when social costs differ from private costs, there is a negative externality
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government intervention
tax on a negative externality to internalise the external cost, reducing over production
subsidise positive externality, encouraging greater provision of goods and services
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impacts of externalities
producers may not fully compensate for the externality, leading to over production of a good
consumers may not fully compensate for the externality, leading to over consumption of a good
externalities
negative externality is where the private behaviour of a firm or individual imposes a cost on a third party but there is no mechanism for compensation
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a positive externality exists where the private behaviour of a firm or individual confers a benefit on a third party but no mechanism for compensation exists
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