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Positive externality of consumption10/29/2022 The social cost, on the other hand, is the real cost to society as a whole it is the private, internal costs plus the value of the negative externalities (external costs ).costs such as wages, raw materials, heating and lighting which must be paid to carry out production, and which would appear in the firm's accounts. The private cost is the internal money cost of production incurred by the firm i.e.In this case there is a divergence between private and social cost. Resources would then be reallocated to other lines of production. #Positive externality of consumption install#The price charged to consumers would not therefore, in this instance, reflect the true cost of the product if the firm were compelled to install equipment which could treat its effluent and render it harmless to the environment, its production costs and prices would rise and consumers would, as a consequence, reduce their demand for the product in question. Such a firm would be treating the environment as a free resource, and would be imposing a cost on society as a whole, rather than just on the consumers of the good. So, how do externalities affect our condition for efficiency? We will consider the oft quoted case of a firm which discharges its waste products into a river. Given the existence of perfect competition, allocative efficiency would automatically occur where price equals marginal cost in all markets, assuming that neither negative nor positive externalities are present. How do externalities affect allocative efficiency? Section 2.4 Market failure - simulations and activities.Section 2.4 Market failure - in the news.Regulation, legislation and direct controls.Possible government responses to externalities.The economic theory of traffic congestion.How do externalities affect allocative efficiency?.Section 2.3 Theory of the firm - simulations and activities (HL only).Section 2.3 Theory of the firm - in the news (HL Only).Section 2.3 Theory of the firm - questions (HL only).
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