Externalities

Mr Abela

Good Neighbour?

Private Cost

Private benefit

External Cost

External benefit

Types of Externality

Private CostsCosts to the company of their actions

Flat Car Park• Cheaper to

build• Uses More

Space

Multi-Storey• More

Expensive• Less Space

What do you think is the key factor for a company in this choice?

Private BenefitWhat the company gets for the actionCar Park• Charge for its use• Encourage people to come to your

shopping Centre / Attraction • Space for your employees to park• Stop people parking in the street

External Costs (Negative Externalities)

External costs are the costs to other people. The external cost in the car park’s case is the loss of the parkland and for local residents it might spoil their view.

External Benefits (Positive Externalities)

External benefits are benefits to people who are not involved in the business. It might stop park users from parking in residents driveways and along the road near their houses.

Near Stowmarket Station

Key Term

Third Party

Person not involved in decisions of the company. i.e. Not the business or the customer.

McDonalds