Economics 1021A/B Lecture Notes - Lecture 16: Externality, Social Cost, Clean Technology

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

An externality is a cost or benefit that rises from an economic transaction, that falls on (is borne by) someone other than the person or the firm who is involved in the transaction (choosing the action) A negative externality imposes a cost and a positive externality creates a benefit. The four types of externality are: negative production externalities, positive product externalities, negative consumption externalities, positive consumption externalities. Negative production externalities: negative production externalities are common. Burning coal to generate electricity emits carbon dioxide. Positive consumption externalities: positive consumption externalities are also common. When you get a flu vaccination, everyone you come into contact with benefits. When the owner of an historic building restores it, everyone who see the building gets pleasure. Negative externalities: pollution: private, external, and social cost. A private cost of production is a cost that is borne by the producer of a good or service.