top of page

Economics explained

Category:

Market failure

Externalities

Externalities

The secret to scoring awesome grades in economics is to have corresponding awesome notes.
 
A common pitfall for students is to lose themselves in a sea of notes: personal notes, teacher notes, online notes textbooks, etc... This happens when one has too many sources to revise from! Why not solve this problem by having one reliable source of notes? This is where we can help.
 
What makes TooLazyToStudy notes different?
 
Our notes:
  • are clear and concise and relevant
  • is set in an engaging template to facilitate memorisation
  • cover all the important topics in the O level, AS level and A level syllabus
  • are editable, feel free to make additions or to rephrase sentences in your own words!

    Looking for live explanations of these notes? Enrol now for FREE tuition!



An externality is a cost or a benefit that falls not on the person(s) directly involved in an activity, but on others.


Externalities can be positive or negative

A positive externality is a benefit that falls on a person not directly involved in an activity

A negative externality is a cost that falls on a person not directly involved in an activity

Externalities are a source of market failure

An externality occurs when the benefits or costs to society differ from the benefits or costs to the individual who is responsible for them.

Such differences occur in four situations:

negative externalities in production
positive externalities in production
negative externalities in consumption (for demerit goods)
positive externalities in consumption (for merit goods)

Resources are not allocated in an ideal way: too few or too many resources are likely to be directed to the production of certain products.

bottom of page