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Exploring Positive and Negative Externalities: Healthcare and Education Examples

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Exploring Positive and Negative Externalities: Healthcare and Education Examples
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Jonny Goddard

@jonnygoddard

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A comprehensive guide to positive and negative externalities in economics, focusing on their impact on resource allocation and social welfare. This summary covers key concepts, diagrams, and examples to illustrate the effects of externalities on consumption and production.

• Positive externalities occur when actions benefit third parties, leading to under-consumption or under-production.
• Negative externalities result in costs to third parties, causing over-consumption or over-production.
• Both types of externalities lead to misallocation of resources and welfare loss.
• Diagrams illustrate the differences between private and social costs/benefits for each type of externality.
• The concept of social optimum is introduced to show the ideal level of production or consumption.

16/05/2023

119

Di Externalities effects grat of consumers/producers on party аз - POSITIVE - production. ↳ MPC a result of POSITIVE consumption → msB i hea

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Externalities: Types and Effects

This page introduces the concept of externalities in economics, explaining both positive and negative externalities in consumption and production.

Positive Externalities

Positive externalities occur when the actions of consumers or producers benefit third parties.

Example: Healthcare, education, and exercise are examples of positive consumption externalities.

Highlight: Positive externalities often lead to under-consumption or under-production, resulting in a misallocation of resources.

Positive Production Externalities

These occur when the actions of producers benefit third parties.

Example: Research and Development (R&D) can be a positive production externality, as firms may copy expensive technology without going through costly R&D themselves.

Negative Externalities

Negative externalities arise when the actions of consumers or producers impose costs on third parties.

Example: Smoking is a classic example of a negative consumption externality.

Highlight: Negative externalities typically result in over-consumption or over-production, leading to resource misallocation.

Negative Production Externalities

These occur when production activities impose costs on third parties.

Example: Air pollution, resource depletion, and deforestation are examples of negative production externalities.

Vocabulary: MPC (Marginal Private Cost), MPB (Marginal Private Benefit), MSC (Marginal Social Cost), MSB (Marginal Social Benefit)

Di Externalities effects grat of consumers/producers on party аз - POSITIVE - production. ↳ MPC a result of POSITIVE consumption → msB i hea

View

Externality Diagrams and Welfare Loss

This page presents diagrams illustrating the effects of positive and negative externalities on consumption and production, as well as the concept of welfare loss.

Positive Externality Diagrams

The diagrams for positive externalities in consumption and production show:

  • MSB (Marginal Social Benefit) curve above MPB (Marginal Private Benefit) curve for consumption
  • MSB curve above MPC (Marginal Private Cost) curve for production

Highlight: In positive externality scenarios, the socially optimal quantity (Q2) is greater than the market equilibrium quantity (Q1).

Negative Externality Diagrams

The diagrams for negative externalities in consumption and production illustrate:

  • MSC (Marginal Social Cost) curve above MPB curve for consumption
  • MSC curve above MPC curve for production

Highlight: In negative externality scenarios, the socially optimal quantity (Q2) is less than the market equilibrium quantity (Q1).

Welfare Loss and Social Optimum

Definition: Welfare loss represents the economic inefficiency caused by externalities, shown as the shaded area in the diagrams.

Highlight: The welfare loss always points towards the social optimum, where MSB equals MSC.

Vocabulary: Social optimum is the point where marginal social benefit equals marginal social cost, representing the most efficient level of production or consumption for society.

These diagrams help visualize the concepts of positive externalities in Economics and negative externalities and resource misallocation, providing a clear representation of how externalities affect market outcomes and social welfare.

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Knowunity is the #1 education app in five European countries

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I love this app ❤️ I actually use it every time I study.

Subjects

/

Economics

/

The operation of markets and market failure

/

The market mechanism, market failure and government intervention in markets

Exploring Positive and Negative Externalities: Healthcare and Education Examples

user profile picture

Jonny Goddard

@jonnygoddard

·

0 Follower

Follow

A comprehensive guide to positive and negative externalities in economics, focusing on their impact on resource allocation and social welfare. This summary covers key concepts, diagrams, and examples to illustrate the effects of externalities on consumption and production.

• Positive externalities occur when actions benefit third parties, leading to under-consumption or under-production.
• Negative externalities result in costs to third parties, causing over-consumption or over-production.
• Both types of externalities lead to misallocation of resources and welfare loss.
• Diagrams illustrate the differences between private and social costs/benefits for each type of externality.
• The concept of social optimum is introduced to show the ideal level of production or consumption.

16/05/2023

119

 

12/13

 

Economics

4

Di Externalities effects grat of consumers/producers on party аз - POSITIVE - production. ↳ MPC a result of POSITIVE consumption → msB i hea

Externalities: Types and Effects

This page introduces the concept of externalities in economics, explaining both positive and negative externalities in consumption and production.

Positive Externalities

Positive externalities occur when the actions of consumers or producers benefit third parties.

Example: Healthcare, education, and exercise are examples of positive consumption externalities.

Highlight: Positive externalities often lead to under-consumption or under-production, resulting in a misallocation of resources.

Positive Production Externalities

These occur when the actions of producers benefit third parties.

Example: Research and Development (R&D) can be a positive production externality, as firms may copy expensive technology without going through costly R&D themselves.

Negative Externalities

Negative externalities arise when the actions of consumers or producers impose costs on third parties.

Example: Smoking is a classic example of a negative consumption externality.

Highlight: Negative externalities typically result in over-consumption or over-production, leading to resource misallocation.

Negative Production Externalities

These occur when production activities impose costs on third parties.

Example: Air pollution, resource depletion, and deforestation are examples of negative production externalities.

Vocabulary: MPC (Marginal Private Cost), MPB (Marginal Private Benefit), MSC (Marginal Social Cost), MSB (Marginal Social Benefit)

Di Externalities effects grat of consumers/producers on party аз - POSITIVE - production. ↳ MPC a result of POSITIVE consumption → msB i hea

Externality Diagrams and Welfare Loss

This page presents diagrams illustrating the effects of positive and negative externalities on consumption and production, as well as the concept of welfare loss.

Positive Externality Diagrams

The diagrams for positive externalities in consumption and production show:

  • MSB (Marginal Social Benefit) curve above MPB (Marginal Private Benefit) curve for consumption
  • MSB curve above MPC (Marginal Private Cost) curve for production

Highlight: In positive externality scenarios, the socially optimal quantity (Q2) is greater than the market equilibrium quantity (Q1).

Negative Externality Diagrams

The diagrams for negative externalities in consumption and production illustrate:

  • MSC (Marginal Social Cost) curve above MPB curve for consumption
  • MSC curve above MPC curve for production

Highlight: In negative externality scenarios, the socially optimal quantity (Q2) is less than the market equilibrium quantity (Q1).

Welfare Loss and Social Optimum

Definition: Welfare loss represents the economic inefficiency caused by externalities, shown as the shaded area in the diagrams.

Highlight: The welfare loss always points towards the social optimum, where MSB equals MSC.

Vocabulary: Social optimum is the point where marginal social benefit equals marginal social cost, representing the most efficient level of production or consumption for society.

These diagrams help visualize the concepts of positive externalities in Economics and negative externalities and resource misallocation, providing a clear representation of how externalities affect market outcomes and social welfare.

Similar content

Economics - AQA A Level Microeconomics Summarised Notes

Market Mechanism, Market Failure and Government Intervention in Markets

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534

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Know AQA A Level Microeconomics Summarised Notes thumbnail

Can't find what you're looking for? Explore other subjects.

Knowunity is the #1 education app in five European countries

Knowunity has been named a featured story on Apple and has regularly topped the app store charts in the education category in Germany, Italy, Poland, Switzerland, and the United Kingdom. Join Knowunity today and help millions of students around the world.

Ranked #1 Education App

Download in

Google Play

Download in

App Store

Knowunity is the #1 education app in five European countries

4.9+

Average app rating

13 M

Pupils love Knowunity

#1

In education app charts in 12 countries

950 K+

Students have uploaded notes

Still not convinced? See what other students are saying...

iOS User

I love this app so much, I also use it daily. I recommend Knowunity to everyone!!! I went from a D to an A with it :D

Philip, iOS User

The app is very simple and well designed. So far I have always found everything I was looking for :D

Lena, iOS user

I love this app ❤️ I actually use it every time I study.