What externalities are and how do they effect a economy
- Created by: rebecca
- Created on: 02-04-13 11:29
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- WHAT EXTERNALITIES ARE AND HOW THEY EFFECT AN ECONOMY
- SOCIAL COSTS AND BENEFITS
- SOCIAL COSTS= SUM OF PRIVATE COSTS + EXTERNAL COSTS
- PRIVATE COST- COST OF BUYING A RAIL TICKET
- EXTERNAL COST- CO2 EMISSIONS
- SOCIAL BENEFITS= SUM OF PRIVATE BENEFITS THAT THE INDIVIDUAL GETS THROUGH TRAVELLING BY RAIL + THE EXTERNAL BENEFITS
- PRESENCE OF EXTERNAL BENEFITS= MERIT GOOD
- NO PRIVATE BENEFITS= PUBLIC GOOD
- EXAMPLES OF EXTERNALITIES; SOCIAL, ECONOMIC AND ENVIROMENTAL
- ECONOMIC
- EFFECTS BUSINESSES
- EXTERNAL COSTS
- POSSIBILITY OF UNWISE INVESTMENTS IN PRESTIGE PROJECTS- HS2?
- EXTERNAL BENEFITS
- INCREASED ECONOMIC ACTIVITY NEAR RAIL STATIONS
- SOCIAL
- RELATES TO NEIGHBOURS
- EXTERNAL BENEFITS
- GREATER ABILITY TO VISIT FRIENDS IN OTHER CITIES
- EXTERNAL COSTS
- MORE LONG DISTANCE COMMUTING CREATING 'COMMUTER TOWNS' WITH FEW SOCIAL ACTIVITIES
- ENVIROMENTAL
- IMPACT IS FIRST FELT BY THE NATURAL ENVIROMENT
- EXTERNAL COSTS
- DECLINE IN PROPERTY VALUES AROUND MAIN RAIL STATIONS
- EXTERNAL BENEFITS
- REDUCED CO2 EMISSIONS IF TRAVELLERS SUBSTITUTE OUT OF CARS AND INTO TRAINS
- ECONOMIC
- DIFFICULTIES MEASURING EXTERNALITIES
- PRIVATE COSTS AND BENEFITS ARE EASY TO MEASURE
- HIRED ACCOUNTANTS TO WORK OUT PRIVATE COSTS
- CONSUMERS WHO SHOP REGULARLY DEVELOP A CLEAR IDEA HOW MUCH SOMETHING IS WORTH TO THEM I.E. PRIVATE BENEFIT
- EXTERNALITIES ARE SPREAD OUT OVER A MUCH WIDER POPULATION- HARDER TO MEASURE
- E.G. A PROJECT LIKE HS2 WILL GENERATE EXTERNAL BENEFITS NEAR ITS FEW STATIONS AS COMPANIES ARE ATTRACTED BY FASTER TRAVEL TO LONDON
- EXTERNAL COSTS-INCREASED NOISE POLLUTION AND VISUAL POLLUTION
- PRIVATE COSTS AND BENEFITS ARE EASY TO MEASURE
- IMPACT OF EXTERNALITIES IN SHORT VS LONG RUN
- HARD TO MEASURE EXTERNALITIES DUE TO THE TIME PERIOD IT TAKES TO MAKE THEIR IMPACT
- WITH RAILWAYS. MANY OF THE EXTERNAL COSTS WOULD BE 'FRONT LOADED'
- BUILDING WORKS WILL CAUSE DISTRUPTION
- HOWEVER, EXTERNAL BENEFITS MAY LAST FOR DECADES TO COME
- E.G. STILL ENJOYING BENEFITS FROM THE MID-19TH CENTURY CONSTRUCTION OF THE UK RAIL NETWORK
- HOWEVER, EXTERNAL BENEFITS MAY LAST FOR DECADES TO COME
- SOCIAL COSTS AND BENEFITS
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