Externalities are ... Positive and negative externalities, examples

Externalities - this is what? What are they for? What are they like? These, as well as a number of other questions will be answered within the framework of the article.

general information

What are externalities? This is the name for situations where the benefits or costs of market transactions are not included in the price. What does this mean? If simpler, then they give a definite effect. And what can externalities provide us? Positive and negative moments - that's their influence. What does this mean in practice? This means situations where there are positive or negative points of activity of one entity for other persons. What will help us to understand better what externalities are? Examples!

Let's say we have a cement plant. It discharges to the atmosphere. Thus, we can talk about the obvious negativity for local residents. But if this plant builds a good and high-quality road, then there will be a positive external effect. Although if this could be ended, then this article would not be written. Externalities are a very broad topic.

Benefits and costs

They are the key objects. Conditionally it is possible to allocate limiting social and private benefits and costs. Most often, the cause of the appearance of external effects is the existence of a certain discrepancy between these quantities.

Let's look at one more example. Let's say that two subjects concluded a contract with each other. And its costs are borne by third parties who do not accept activity under existing agreements. Let's return to our cement plant. It generates negative externalities. It is not necessary to talk about their complete elimination. But when paying for social costs, the level of influence will decrease. So, the paved road is one moment. If the factory sends residents of the surrounding areas at their own expense to rest (considering the example of the USSR, where workers often went to sanatoriums), then this is another matter. But in the second case, there is such a negative effect as an increase in the prime cost of cement, the opportunity to compete with other subjects of economic activity decreases, and production volumes decrease. Such characteristics are an integral part of modern capitalism.

On the degree of satisfaction

When external effects manifest themselves, externalities do not always work with the same efficiency. So, if the cement plant was built in a village, from which to a normal road ten kilometers, then this is one thing. And if it is in the city, where the infrastructure is well developed, it's quite another. The impact depends on a large number of factors. An example is scale. So, if the cement plant will raise a large amount of dust and deliver a lot of inconvenience, then this is one thing. But if he has working rooms equipped with filters, and around there are numerous forest belts, this is quite another. Yes, this cement plant will cause some inconvenience, but on a small scale. In which case, the situation can be adjusted by the state by levying an environmental tax and sending it to various initiatives that will reduce marginal private costs and negative externalities.

Effectiveness of compensation measures

The effect can be quite controversial and questionable. So, let's look at the alcohol. No one has any doubt that it is harmful and does not do any good. But nevertheless they are very actively traded. At the same time, there are no guarantees that the third party will not suffer from use. Let's say an alcoholic got drunk and broke someone's nose. Bad? Certainly! But what to do in terms of compensation? Legislation provides that this aspect is assigned to the defendant, that is, the same alcoholic. But there is also the second side - the manufacturer! Various excises are collected from him, which are used to conduct an anti-alcohol campaign, to promote healthy lifestyles, to help with rehabilitation, and so on. But, alas, judging by the fact that we take the leading positions in terms of alcohol consumption, they are not effective. Therefore, selling alcohol for later use is a rather controversial issue in terms of cost recovery.

Public goods

But enough about the bad, let's talk about positive externalities. If there is a certain good and there is no possibility or it is inappropriate to force people to pay it, then it becomes public. Here, too, its scale is important. The most positive is the pure public good. So the effects are called, which are used by all people, regardless of whether they pay it or not.

As an example, take clean air or wood. A feature of a pure public good are two properties: non-selectivity and non-exclusivity. Whatever the conditions, everyone can freely use the same air. However, in certain cases, negative effects may occur.

Let's take law enforcement system. She works at the expense of tax revenues. If a certain subject of economic activity appears that shies away from paying them, then the free rider problem arises . Such a situation is unprofitable for the rest of society, but the maintenance of the law must be carried out. Why he does not pay taxes should worry the fiscal service. While a violation of the law in another matter should not go unnoticed for the reason that all before him are equal and there are no exceptions.

Externalities in the economy

This is quite an interesting topic, which, if possible, should be given more attention. But for now we'll manage one subtitle. It should be noted that it is also difficult to find a sphere that would be a better illustration of the process under consideration. Economic externalities can take a variety of forms and influence people in numerous ways. Considered earlier the example with the road - only a small part.

So, the manifestation of externalities can be considered to be the taking by entrepreneurs of certain social obligations, such as repairing a kindergarten, schools, opening playgrounds, unauthorized dumping of garbage to residential buildings and much more. You can also recall specific activities like beekeeping. So, a person is engaged in entrepreneurship and cares first of all about himself. But thanks to him, bees pollinate trees in neighboring areas, people get honey. True, they can also bite in case of aggression from the person to insects. These are the externalities, positive and negative.

Conclusion

How great is the topic and how I would like to talk about it more. One can also recall the education that educates highly cultured people, which harms the environment and other people less, and about tourism, which has a positive impact on health and economy, and on the economic sector, where qualified people with higher education can create increasingly sophisticated and sophisticated things. It is not necessary, however, to forget that externalities are also negative aspects, but who said that comfort can be achieved without difficulty?