Externalities

1
Externalities

• Chapter 9 Section 3

2
Question

• What does external mean?
• Situated outside
• Cause unintended effects

3
Objectives

• What is a negative externality?
• What is a positive externality?
• What can be done about negative externality
  problems?

4

• Externality
• A side effect of an action that affects the
  well-being of third parties

5

• External (spillover) Costs
• The condition in an unregulated free market
  system where the social costs of production
  exceed the private costs of production
• My personal costs are spilling-over onto society.

6

• Negative Externality
• An adverse side effect of an action that is felt
  by others
• Example
• Loud radio next door, but you want to sleep

7

• Positive Externality
• A beneficial side effect of an action that is
  felt by others
• Example
• Bees can make an orchard more productive

8
List some EXTERNALITIES that affect you.

• Classify them as
• Positive or Negative

9
How should we deal with Negative Externalities?

• Court System
• Regulation
• Taxation

10
How is your education a Positive Externality for
others?

• Society
• will benefit from your work contributions.
• Your parents
• You will not be a burden on them.

11
Assessment

• What is a negative externality?
• What is a positive externality?
• What can be done about negative externality
  problems?

12
Things to Know

• Interlocking Directorate
• Merger
• Public Relations Specialist
• Public Utilities Commission
• Tying Contract