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Ch.10 Externalities - Chapter 10 Externalities An example...

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Chapter 10 Externalities An example of market success or market failure?
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Definitions An externality arises when a person engages in an activity that impacts the well-being of a bystander and yet neither individual pays or receives compensation for that effect. If the impact on the bystander is adverse, it is called a negative externality . If it is beneficial, it is called a positive externality .
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Private and Social Cost Private cost is the cost of producing an additional unit of a good or service that is borne by the producer of that good or service. Social cost is the cost incurred by the producer and by everyone else in society. An externality in production exists when private cost is not equal to social cost
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Private and Social Value Private value is the benefit from an additional unit of a good or service that the consumer of that good or service receives. Private value is another term for willingness to pay.
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