Externalities Negative

Define key words  Market failure  Private cost  External cost  social costs  De merit goods  Externalities 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

Externalities  Defined  Third party (or spill-over) effects arising from the production and/or consumption of goods and service.

p.60 – AS text 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?  /Heavy-cost-binge-drinking.html /Heavy-cost-binge-drinking.html   nottinghamshire nottinghamshire

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 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)   Heathrow airport expansion plans result in further protests  What are the private, external and social costs of the expansion? p.60 – AS text

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 goods  Externalities 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