Topic Four (1.4): Private Costs and Benefits, Externalities and Social Costs and Benefits
Introduction
In this topic, you will learn how to define negative and positive externalities and how these apply to private costs and benefits, external costs and benefits, and social costs and benefits. You will analyse deadweight losses arising from externalities and will learn how to explain terms such as ‘asymmetric information’ and ‘moral hazard’. Finally, you will be able to evaluate the use of costs and benefits in analysing decisions.
Task
Economics in Context
- Read the article on page 327 of the textbook and consider the impact on air quality from farmers illegally setting fires to clear land in order to plant palm oil plantations.
- Further guidance and suggested answers can be found in the digital textbook and in General Resources.
Watch
- Now watch these videos on negative and positive externalities in both consumption and production and make notes.
WATCH – Negative Externalities in Production and Consumption (YouTube) Links to an external site.
WATCH – Positive Externalities in Production and Consumption (YouTube) Links to an external site.
- The next two videos cover asymmetric information and cost benefit analysis. Watch them and make notes.
WATCH – Cost Benefit Analysis (YouTube) Links to an external site.
Read and Make Notes
Read and make notes from the following sections of the textbook on pages 327 to 335:
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- 33.1 Externalities;
- 33.2 Types of costs and benefits;
- 33.3 Negative and positive externalities of production and consumption;
- 33.4 Asymmetric information and moral hazard;
- 33.5 Use of costs and benefits in analysing decisions.
Glossary
Highlight any new terminology on your glossary.
Activities in the Book
- It is important that you complete Activities 33.1, 33.2, 33.3 and 33.4 in the textbook.
- Suggested answers can be found in the digital textbook and in General Resources.
Task
Think Like an Economist
- Read and complete the ‘Think like an Economist’ task on page 335 of the textbook. This task asks you to consider and assess the economic implications of the China-Pakistan Economic Corridor (CPEC).
- Suggested answers can be found in the digital textbook and in General Resources.
Consolidate
- Please now have a go at the exam-style questions on pages 335 to 337 of the textbook.
- Suggested answers can be found in the digital textbook and in General Resources.
Reflect
- Draw up a table like the one on page 337 of the textbook and complete the self-evaluation.
- If there are any areas about which you are unsure, please go back over your notes, the textbook and the resources listed in this topic before moving on.
Quiz
Now that you have completed all the topics, it is time to check your understanding by taking the multiple-choice quiz. You can take this quiz as many times as you like. Use it as an opportunity to test yourself!
Assignment
When you have completed all the activities and are fully prepared and feel confident with the material, you should complete Assignment One and submit it to your tutor via Canvas for marking and feedback.