Positive Externalities Flashcards

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What is an externality?

A cost or benefit to others who are not part of a market deal.

A good effect on third parties that is not paid for.

Someone not buying or selling but still affected.

A gain to people outside the deal, caused by the activity.

The total benefit to everyone. It equals private benefit plus external benefit.

Because buyers and sellers ignore external benefits, so too little is made or used.

Too low. The market under-consumes or under-produces.

Having a vaccine lowers the chance of others getting ill.

A firm trains workers, and other firms gain when trained staff move jobs.

Look for a benefit to people who do not buy or sell the good.

Social benefits are larger than private benefits.

Both. They can come from using goods or from making them.