ECON 1000 Lecture Notes - Lecture 15: Cost, Marginal Cost, Social Cost
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ECON 1000 Full Course Notes
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Externality - a cost or benefit that arises from production and falls on other than the person or the firm choosing the action. Four types of externality: negative production externalities - common, examples: i. ii. Burning coal to generate electricity emits carbon dioxide. Logging and clearing forests destroy the habitat of wildlife: positive production externalities, examples: i. Locating honeybees next to a fruit orchard, fruit growers get an external benefit from the bees, which pollinate the fruit orchards and boost fruit output: negative consumption externalities - common, example: i. Noise parties disturb others: positive consumption externalities - common, example i. Owner of a historic building gets restored, everyone who sees the building gets pleasure. Private cost: a cost that is borne by the producer of a good or service. Marginal private cost: private cost of producing one more unit of a good or. External cost: a cost that is not borne by the producer but borne by other people.
