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.

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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

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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?

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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