Private and Social Costs and Benefits
Private and Social Costs and Benefits
An externality is a cost or benefit imposed on a third party who is not involved in the economic transaction. It causes private and social costs or benefits to diverge, so the free-market output may not be the socially optimum output.
Step-by-step lessons covering AQA A Level Economics 1.8.4 Positive and negative externalities in consumption and production for A Level Economics. Each lesson works through exam-style questions in Paper 1, Paper 2 and Paper 3 format. Start with the core supply-and-demand models before moving on to the more evaluation-heavy macroeconomic policy topics.