Naeem, strictly speaking the cost curve link to production (it is the supply curve) and the benefits curve links to consumers (the demand curve). When you talk about costs to consumers, this reduces benefits, hence negative externalities in consumption leads to MSB being < MPB. Exam boards are behind the times with this though so your point would still be valid even though strictly speaking it is incorrect theory
during this lock down situation i have been using ur videos very very often , you have a very clear explanation that is very easy to follow and understand . Thank you for being so amazing it has helped me clear up a lot of confusion during this time
at 5.47ish, did you not mean an 'overconsumption'? because its negative externalities in consumption or if thats not what you meant, why would it be in production?
I know that it has been five years so you probably don't care anymore, but I think it is both a overproduction and overconsumption of the demerit good.
Please can you explain why the socially optimum price is lower than the market eqb price? your videos are literally how I learn anything in economics, they're amazing, thank you!
If the social benefit curve was actually the demand curve (reflective of demand when full information is known and followed), demand would be lower and thus the market price would be lower
@@EconplusDal but would this not encourage consumers to buy, for example, more cigarettes as they are now cheaper? Further worsening the negative externality?
Hannah CP it’s not necessarily price. See the axis it has cost and benefit as well. When P1 is lowered to P* this doesn’t means that price is lowered but cost has been (will) reduced. Hope this help.
Karthik Selvan the reason is we are not trying to discourage consumption by raising price (that is a change along the “demand curve” rather than a shift as shown in the diagram). Instead, the solution is to actually changing the consuming habits (by having campaigns against smoking for example) to shift the “demand curve” inwards, decreasing P and Q simultaneously.
in the case of a smoker.. why is the optimal price then less than the original price? and how does this then drop the quantity of cigarettes being smoked?
So are the cost curves strictly talking about production likewise with the benefits curve and consumption? Because can't there be costs from consumption and benefits from production? E.g. if we take the tobacco industry for example, Could I talk about the shift in the Costs curve from 'consumption' as opposed to the benefit? Where the Privates cost being how much they pay for the tobacco and the external cost being health care costs.
Why does msb (the demand curve) doesn't represent the cost of buying the car or the products that destroys the environment and creates a negative externality?
In the second graph, why isn't marginal Social cost towards the right of marginal private cost? Doesn't a negative externality increase the social cost since social cost= private cost+ external cost?
icomeinpeace10000000 Since you didn't get a reply I thought I would. The government can correct the welfare loss through government intervention such as an indirect tax. So for an indirect tax this would shift the MPC to the left bringing it to the level of MSC and removing the welfare loss in the process by reducing supply of the good essentially.
No. If MSB was greater than MSC, each extra unit would bring in more benefit than cost. This is true up until MSB=MSC, where total benefit is being maximised i.e. there is maximising of welfare.
when you're concluding the negative externalities of consumption graph (about 5 mins in) you keep mentioning 'over-production' - I just wanted to check whether this is a mistake or not? Should it be over consumption? Also thanks for all the videos, they're amazing!! :)
Thank you for the excellent explanation. However, I don’t understand why the MSC curve is on the left of the MPC curve (for the production diagram) when MSC are greater than MPC? Surely it would shift outwards (right). Could you please explain why?
I understand this was three years ago... but i think its because at that same quantity the price is higher whereas if it was at the same price less could be produced.
+Anon An example of a negative externalities of consumption, would be when smokers smoke in public (because they are consuming it in public and so they are harming the people around them). An example of negative externalities of production would be environmental pollution (when industries pollute the area due to production activities).
+Anon Also, two more examples of negative consumption externalities are 1) driving cars by use of fossil fuels that pollute the atmosphere. 2) partying with loud music and disturbing the neighbors.
Negative externalities cause overproduction and over consumption , causing the supply curve ( mpc) to move to the right ...decreasing the price and increasing the quantity as the negative externalities are often not held into account by the individual firms ..and therefore this leads to a market failure .. So the first diagram doesn't actually make sense ...
Thank you so much. 7 years on, amazingly selfless. I wish teachers were paid more.
Naeem, strictly speaking the cost curve link to production (it is the supply curve) and the benefits curve links to consumers (the demand curve). When you talk about costs to consumers, this reduces benefits, hence negative externalities in consumption leads to MSB being < MPB. Exam boards are behind the times with this though so your point would still be valid even though strictly speaking it is incorrect theory
7 years later and exam boards are still behind the times... if only they had Dal
Thanks bro, never understood why the triangle showed deadweight loss until you explained it
I'm in the IB and take HL Econ and I have a test tomorrow so this really helped me. Thanks so much!
You're a great teacher and you have really helped me get through my IB eco exams!!! Thank you so much!!!
during this lock down situation i have been using ur videos very very often , you have a very clear explanation that is very easy to follow and understand . Thank you for being so amazing it has helped me clear up a lot of confusion during this time
The best explanation yet on TH-cam! Thanks! :)
You explained this so well, thank you, it makes so much more sense now
you are champion of Economics.i am also a teacher.i would simply say " Superb"
Really useful, I learned so much about economics and life! Thank you Dal! :)
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You are the best lecturer in the world
U look like vikkstar
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at 5.47ish, did you not mean an 'overconsumption'? because its negative externalities in consumption or if thats not what you meant, why would it be in production?
I know that it has been five years so you probably don't care anymore, but I think it is both a overproduction and overconsumption of the demerit good.
Please can you explain why the socially optimum price is lower than the market eqb price? your videos are literally how I learn anything in economics, they're amazing, thank you!
If the social benefit curve was actually the demand curve (reflective of demand when full information is known and followed), demand would be lower and thus the market price would be lower
@@EconplusDal but would this not encourage consumers to buy, for example, more cigarettes as they are now cheaper? Further worsening the negative externality?
Hannah CP it’s not necessarily price. See the axis it has cost and benefit as well. When P1 is lowered to P* this doesn’t means that price is lowered but cost has been (will) reduced. Hope this help.
That cost is external cost, btw.
@@bossman5101 thank u sooooo much i always had this problem !!!
Great video mate can’t wait to see you!
Best explanation on TH-cam! Thank you so much!!! It is really helpful:)
Thanks. I'm just starting this part.
Why is the socially optimum price lower than the private, surely you want to contract demerit good consumption with a higher price?
THATS WHAT I DONT GET!!!
Karthik Selvan the reason is we are not trying to discourage consumption by raising price (that is a change along the “demand curve” rather than a shift as shown in the diagram). Instead, the solution is to actually changing the consuming habits (by having campaigns against smoking for example) to shift the “demand curve” inwards, decreasing P and Q simultaneously.
@@username-zs6dv haha ive graduated with a degree in economics in this time but sure others may find useful
Great vid man. Thanks
in the case of a smoker.. why is the optimal price then less than the original price? and how does this then drop the quantity of cigarettes being smoked?
ian thomson The tobacco is overvalued by the consumer, so it’s true value is lower than what a smoker would pay
Why is the price low in negative productions externalities. While the price is high in negative consumption externalities?
u save my life
thank you!
Can you draw a triangle of welfare gain pointing from the socially optimal equilibrium to the original equilibrium
So are the cost curves strictly talking about production likewise with the benefits curve and consumption? Because can't there be costs from consumption and benefits from production? E.g. if we take the tobacco industry for example, Could I talk about the shift in the Costs curve from 'consumption' as opposed to the benefit? Where the Privates cost being how much they pay for the tobacco and the external cost being health care costs.
SOMEONE PLEASE explain to me why the deadweight loss is that triangle, I always get it wrong help!
@@jakescott8768 what playlist are all those videos in because they are not in the microeconomics playlist
AGREED, BEST EXPLANATION!
Why does msb (the demand curve) doesn't represent the cost of buying the car or the products that destroys the environment and creates a negative externality?
Thank you so much Sir 😊
Ur a good person
thank you
love for this Dal was rlly helpful
In the second graph, why isn't marginal Social cost towards the right of marginal private cost? Doesn't a negative externality increase the social cost since social cost= private cost+ external cost?
Very useful, thank you.
THANK YOU SO MUCH! I UNDERSTAND YOU!
Is the welfare loss the same as negative externality?
So how is it achieved to get closer to social optimum level?
icomeinpeace10000000 Since you didn't get a reply I thought I would. The government can correct the welfare loss through government intervention such as an indirect tax. So for an indirect tax this would shift the MPC to the left bringing it to the level of MSC and removing the welfare loss in the process by reducing supply of the good essentially.
Thanks, do you look at in terms of supply = costs so indirect tax increases cost of production which causes Mpc to shift
icomeinpeace10000000 Yes, exactly. The supply curve for the producers is the MPC so an indirect tax would do what you said.
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why is the socially optimum level where the MSC=MSB? Would it not be a more efficient allocation of resources if the MSB was greater than the MSC?
No. If MSB was greater than MSC, each extra unit would bring in more benefit than cost. This is true up until MSB=MSC, where total benefit is being maximised i.e. there is maximising of welfare.
oh okay
Very helpful
for production does it matter which curve is labeled mpc and msc
+alli g Yes absolutely - watching the next video on positive externalities will hopefully clear this up
when you're concluding the negative externalities of consumption graph (about 5 mins in) you keep mentioning 'over-production' - I just wanted to check whether this is a mistake or not? Should it be over consumption?
Also thanks for all the videos, they're amazing!! :)
yeah it is supposed to be over consumption
I think he’s correct when he says ‘over production’ because unless there is no excess production how can you expect an over consumption?
When we talk about demerit goods or negative externalities, we always include both over production and consumption
Yeahhhhh same question!
Really useful!
Thank you for the excellent explanation. However, I don’t understand why the MSC curve is on the left of the MPC curve (for the production diagram) when MSC are greater than MPC? Surely it would shift outwards (right). Could you please explain why?
I understand this was three years ago... but i think its because at that same quantity the price is higher whereas if it was at the same price less could be produced.
what are examples of negative externalities of consumption and production?
+Anon An example of a negative externalities of consumption, would be when smokers smoke in public (because they are consuming it in public and so they are harming the people around them). An example of negative externalities of production would be environmental pollution (when industries pollute the area due to production activities).
+Anon Also, two more examples of negative consumption externalities are
1) driving cars by use of fossil fuels that pollute the atmosphere.
2) partying with loud music and disturbing the neighbors.
Thank you so much!!
Wait sir, why does benefit curve shifting represents over-production? Isn't MPB shifts to MSB over-consumption?
yes thats what i thought as well
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I liked it
Best
is it wrong to call poverty a negative externality?
No certainly not, identify a 3rd party cost to poverty and you have a negative externality
Is there a good example for the last graph that I can reference?
Negative externalities cause overproduction and over consumption , causing the supply curve ( mpc) to move to the right ...decreasing the price and increasing the quantity as the negative externalities are often not held into account by the individual firms ..and therefore this leads to a market failure ..
So the first diagram doesn't actually make sense ...
ehrenmann
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