EconNotes5 - EXTERNALITIES AND EFFICIENCY Externalities...

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EXTERNALITIES AND EFFICIENCY 22/03/2008 16:52:00 Externalities/ Efficiency     EXTERNALITY o A benefit or cost that affects someone who is not directly involved in  the production or consumption of a good or service. A negative externality in the market may produce a quantity of the good that  is greater than the efficient amount. A positive externality in the market may produce a quantity of the good that is  less than the efficient amount. Externalities interfere with the economic efficiency of a market equilibrium. PRIVATE COST o The cost borne by the producer of a good or service. SOCIAL COST o The total cost of producing a good, including both the private cost and  any external cost. PRIVATE BENEFIT o The benefit received by the consumer of a good or service. SOCIAL BENEFIT
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EconNotes5 - EXTERNALITIES AND EFFICIENCY Externalities...

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