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Externalities key terms

Quiz by Mark Seccombe

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13 questions
Show answers
  • Q1
    A situation in which the free market mechanism does not lead to an optimal allocation of resources
    Market failure
    30s
  • Q2
    A cost or benefit which affects a third party which is external to the transaction.
    Externality
    30s
  • Q3
    An externality that arises as a result of consumption of a product and affects the demand side of the market. It could be positive (e.g. using deodorant) or negative (e.g. smoking).
    Consumption externality
    30s
  • Q4
    An externality that arises as a result of production of a product and affects the supply side of the market. It could be positive (e.g. providing employment) or negative (e.g. generating pollution)
    Production externality
    30s
  • Q5
    The cost incurred by an economic actor involved in the production or consumption of a good.
    Private cost
    30s
  • Q6
    The cost incurred by a third party not involved in the production or consumption of a good.
    External cost
    30s
  • Q7
    The costs to society of production or consumption. The private cost and social cost added together.
    Social cost
    30s
  • Q8
    The additional cost to society of the production of one more unit of a good.
    Marginal social cost
    30s
  • Q9
    The harm done to society as a result of marginal social cost being higher than marginal private cost and the good being over-produced.
    Welfare loss
    30s
  • Q10
    The benefits received by the economic actors involved in the production or consumption of a good.
    Private benefit
    30s
  • Q11
    The benefits received by a third party not involved in the production or consumption of a good.
    External benefit
    30s
  • Q12
    The private and external benefits added together
    Social benefit
    30s
  • Q13
    The additional benefit to society as a result of consuming one additional unit.
    Marginal social benefit
    30s

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