Question

What are externalities? Explain with relevant examples.

Answer 1

Externalities is defined as the cost or benefit which is not incurred or financially recieved by a producer. Externalities can be both positive as well as negative. Externalities are generally environmental such as natural resources, etc. Like negative externality affects business in form of pollution which Diminishes the value of the property or the health of the poeple surrounding that particular area . On the other hand, positive externalities includes actions which helps in reducing transmission of disease or avoide usage of lawn treatments so as to run off rivers.

So basically, negative externality affects the economy as well as society in terms of increase in cost which makes it negative externality which means social cost outweigh the private cost. While positive externalities affects economy as well as society in terms fall in social cost and private cost which gives benefit to the society.

Example of negative externality -

• Air pollution which caused from motor vehicle
• Raising fa animals may sometimes affect people who are outside the farm

Example of positive externality -

• Education helps in providing benefits to society as well as individual person
• Improvement in technology