Question

Respond to the statement ,   "Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result from:" List 3 examples from your personal life. Make sure to use 3 benefits and 3 costs.

Answer 1

Yes, the externalities are the unintended costs or the benefits that are unintentionally imposed on the person or the industry. The costs are called externalities because the effect of the externalities and the costs or benefits related to them are not reflected in the market price of the product.

The externalities are of two types-

NEGATIVE EXTERNALITY- The externaities which cause the indirect loss or the cost to individual such as the smoke from the factories. They have a negative impact on the society.

POSITIVE EXTERNALITY- These are the externalities which unintentionally cause some benefit to the individual or the society without being accounted for.

EXAMPLES-

POSITIVE EXTERNALITY-

1- Suppose we have a large orchid. Then the bees will help in the pollination of the flowers which will help to increase the fruit productivity. Hence it is positive externality.

2- The construction of roads and highways increases the prices of the houses nearby.

3- The opening of new schools helps to build up the reputation of the whole society apart from providing education to the children.

NEGATIVE EXTERNALITY-

1- Passive smoking, i.e indirectly we take in the smoke from the person who is smoking near us, which is more dangerous than the person who is actually smoking.

2- When ever there is construction of new house or building, There is development of infrastructure but the roads get damaged due to movement of heavy vehicles such as cranes and trucks.

3 - Whenever we download something from the internet , sometimes viruses and other spams enter our system and damage it.