Externality
Externalities are costs or benefits that are caused by producing or consuming a good but that are not included in the market price for the good. They are simply the unintended side effects of market activities. Externalities can be positive or negative. One example of a positive externality might be when beekeepers provide a means of pollination for fruit growers. Air, water, and noise pollution are examples of negative externalities.
Please answer the following questions to describe an instance in which you, an acquaintance, or family member has experienced an externality. Please use economic concepts, and use references in your main contribution.
1.How did it affect you (or your acquaintance or family member?) Please explain.
2. What were the effects? Please explain.
3. Did you (or your acquaintance or family member) experience increased or decreased health or quality of life? Please explain.
If you choose to write about a negative externality such as pollution, what do you think is the best way to reduce pollution? Please explain.
If you choose to write about a positive externality, what is the economic problem that positive externalities create? How would you resolve that? Please explain.
Sample Solution
An externality is any effect on people who are not involved in a particular transaction. Pollution is the classic example. When another person buys and smokes cigarettes, there is a transaction between the cigarette company and the smoker. But if you are sitting near the smoker, you are an affected party who is not directly compensated from the transaction, at least before taxes were imposed on cigarettes. Similarly, you pay nothing for the benefits you get from viewing your neighbor’s flowers, nor is there a direct mechanism to reward your neighbor for her efforts.
