Overview
Externality graphs are essential tools in economics that help visualize the effects of externalities on market outcomes. They illustrate how costs or benefits that affect third parties can lead to inefficiencies in the market, resulting in overproduction or underproduction of goods. Understanding th...
Key Terms
Example: Pollution from a factory affects nearby residents.
Example: Education increases societal knowledge.
Example: Air pollution from cars affects public health.
Example: The social cost of pollution includes health care costs.
Example: When externalities lead to overproduction or underproduction.
Example: As prices rise, suppliers are willing to produce more.
Related Topics
Public Goods
Goods that are non-excludable and non-rivalrous, leading to free-rider problems.
intermediateMarket Structures
Different organizational forms of markets, such as perfect competition and monopoly.
intermediateCost-Benefit Analysis
A method to evaluate the total expected costs versus benefits of a project or decision.
advancedKey Concepts
positive externalitynegative externalitysocial costmarket failure