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EXTERNALITIES ( p 58)
8. Define an externality ( use words ...spillover effect and third party....)
9. Give TWO examples of spillover effects on third parties
10. What is a PRIVATE cost or benefit ?
11. What is an EXTERNAL COST or BENEFIT ?
12. What therefore is a SOCIAL cost or SOCIAL benefit ? Why are external costs different
from social costs ????
EXTRAS
a) List all the private costs of a university education then ....List the private benefits of
a university education ( go to p 70 for more info...)
b) List the social costs of the state /government providing university education subsidies
then list some social benefits ( remember to third parties/spillover effects) of state
university eductaion provision
NEGATIVE EXTERNALITIES
Aim 3 : Explain what is meant by negative externalities and how they arise as a result
of the divergence between private and social costs
Aim 4: Explain how negative externalities lead to market failure
13. Define negative externality
14. What are the FOUR negative externalities discussed on p60...can you name any others
which we have studied
15. Draw a diagram to show why a negative externality causes overproduction ie too many
scarce resources used for its production ( fig 3.1 on p61) Label the private and social cost
lines.....
16. Do the Activities on page 61
17. Explain again how negative externalities cause the market to fail.....
POSITIVE EXTERNALITIES
Aim 5: Explain what is meant by positive externalities and how they arise as a result
of the divergence between private and social costs
Aim 6 : Explain how positive externalities lead to market failure
18. Define positive externality
19. What are the THREE negative externalities discussed on p62 and explain the third
party/spillover benefits...can you name any others which we have studied
20. Draw a diagram to show why a positive externality causes under production and so market
failure ie too few scarce resources used for its production ( fig 3.2 on p62) Label the
private and social benefit lines.....
21. Do the Activities on page 62
51. Draw a diagram to show how a subsidy is used to internalise a positive externality and
EXPLAIN your diagram (ie how it corrects the fact that too fee scarce resources are used to
correct the externality)
52. Why do some critics say that the current system of university education is incorrec t and
MORE government subsidies need to be given ? ( Learn this ...a potential essay question
this year ?
53. Why should rural bus services be subsidied?
54. Make a list of disadvantages/problems of using subsidies to correct market failure
REMEMBER THE FINAL AIM ...To discuss the effectiveness of regulations etc
(ESSAY !!!...learn...benefits and drawbacks for an essay
TRADABLE POLLUTION PERMITS
62. Explain how a tradable permit works ?
63. Why is this a market based approach ?