externalities

externalities - 1 Externalities An Externality is the...

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1. Externalities An Externality is the uncompensated impact of one person’s actions on the well being of a bystander. A byproduct of a persons actions, not necessarily intended, that affects the people around him or her. An example of an externality would be pollution. Although we don’t all create pollution, we all have to deal with it. An externality can either be negative or positive. The exhaust from an automobile would be considered a negative externality because we all have to deal with the smog it creates. When someone does research into new technology, positive externalities are created because it produces information that other people can use. Externalities are considered forms of “market failure.” The market equilibrium is not efficient when there are externalities present. This is due to the fact that buyers and sellers do not take into consideration external effects of their actions when deciding how much to demand and supply. The market shows an equilibrium that fails to maximize the total benefit to society as a whole. Therefore, the participants in a market fail to receive the total social benefit that is possible. Hence, externalities cause markets to allocate resources inefficiently. There are many types of negative and positive externalities. An example of a
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externalities - 1 Externalities An Externality is the...

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