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3.3 Externalities

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by

Latricia Parker

on 14 March 2016

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Transcript of 3.3 Externalities

3.3 Externalities
By: Alexis Greear, Alexis Stuart, Latricia Parker

What role do they play in government?
They act as sign of market failure.
Show the cost/benefits of a good or service that is not assigned properly.
What is a "free rider?"
A free rider is someone who would not be willing to pay for a certain good or service, but would get the benefit of it anyway if it were provided as a public good.
Example: All of your friends go out to eat, and agree to split the bill. However, one person claims they don't have enough, but will still eat. With no plans of paying you all back...
What is an externality?
An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
Can be positive or negative
Positive Externality
Someone buys an ugly old house in the neighborhood and the remodel it. The neighbors were not involved in this decision and did not pay to help. But, they still receive benefits such as a better view and higher property value.
Government Driven or Market Driven Solutions?
Controversy over whether or not private sectors produce more positive externalities than the government.
Economics want the government to play a role by setting standards that industries will have to meet, while those industries find ways to meet those goals.
Current Event Externality
Southfield High & Lathrup Combing: Businesses in the area will gain more customers then previously which will cause an increase of revenue.
Negative Externality
Your next door neighbor plays the oboe and invites other oboe players every Friday night. Sadly, you hate the sound of the oboe.
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