Essay about Eco 204 Dis 2 Wk 2

Submitted By computerluuv
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Pages: 2

Explain the difference between a positive and negative externality. In your analysis, make sure to provide an example of each type of externality. Why does the government need to get involved with externalities to bring about market efficiency? What solutions need to be provided for your examples?

First of all externalities are the costs or benefits associated with consumption or production that are not reflected in market prices and fall on parties other than the buyer or seller (Amacher & Pate, 2013). With everything externalities has a positive and a negative; positive externalities is when the consumption or production is used and does good to benefit a third party. With negative externalities it’s just the opposite it causes the third party harm.

An example of positive externalities is what we all are doing now attending school. Although we are receiving a private benefit from the knowledge that we receive, we also take this knowledge out into the society and share it with whomever we come across. Another one would be someone who plants trees which provide clean air to the environment.

An example of negative externalities would be when trees are cut down and shopping malls are built the external cost is the fresh air that the trees provide and the polluted air that we are breathing in. Also negative would be loud noise from a neighbor when you are trying to sleep.

The government should get involved as well as the people. The people know what is good and what