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Let’s Talk About Externalities!
Basic Definition: Self-Interested buyers and sel
Let’s Talk About Externalities!
Basic Definition: Self-Interested buyers and sellers neglect the external costs or benefits of their actions, so the market is not efficient. Markets by their very nature breed failure. A type of market failure is an externality. An externality is the uncompensated impact of one person’s actions on the well-being of a bystander. Externalities can be positive or negative depending on whether the impact on the bystander is adverse or beneficial. Governments can sometimes improve market outcomes. In the presence of externalities, public policy can improve efficiency.
Negative Externalities – Common examples are pollution, neighbor’s dog barking, blasting music, noise pollution, secondhand smoke and hazardous driving habits (phones, texting, eating, drunk and otherwise distracted).
Positive Externalities – The social value of a good includes private value – the direct value to buyers & external benefit – the value of the positive impact on bystanders.
Internalizing the Externality – Altering incentives so that people take account of the external effects of their actions.
Discussion Instructions:
YOUR INITIAL POST (WITH ARTICLE & SUMMARY) MUST BE IN THE DISCUSSION early enough for classmates to respond. Check due dates in the Unit folder.
Do a little basic research. Find an article online that deals with externalities of some type. Share a link to the article and summarize the article, in mostly your own words, for your classmates. This should be a minimum of 2 healthy paragraphs. Think about what you have learned about the externalities in the economy (from an economic perspective – let’s keep this as non-political/non-partisan as we can). Reference the market failure you identified, was it a positive or negative externality and did you see any evidence of internalizing it?
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