1/31/2024 0 Comments Negative externality![]() Buying an electric car which reduces pollution.Other examples of positive externality in consumption The social benefit of consuming education is greater than your personal benefit. When consuming a product leads to benefits for other people.įor example, if you take a three-year training course in information technology, you gain personal skills, but also other people in the economy can benefit from your knowledge. Farmers use fertilizers and pesticides which harm insects and also can get into the food chain, causing health problems in the future. Other examples of a negative externality in production The social cost of making furniture is greater than the private cost to a firm. It also leads to higher global warming as there are fewer trees to absorb carbon dioxide. Firstly it harms the indigenous people of the Amazon rainforest. Making furniture by cutting down rainforests in the Amazon leads to negative externalities to other people. Therefore, the social cost of production is greater than the private cost This is when producing a good causes an external cost to a third party. Providing a cafe which employs previously homeless people helps to reduce the social problem of homelessness.A private school provides an external benefit because the workforce will be more educated in the future and it saves the cost of government education in a publically-funded school.Other examples of positive externality in production The beekeeper provides an external benefit to the apple grower because his bees help to fertilise the apple tree. ![]() The beekeeper saves the cost of having to provide a source of nectar. In this case, the social cost is less than the private cost. An external benefit is that he provides nectar for a nearby beekeeper who gains increased honey as a result of the farmers’ orchard. This occurs when producing a good cause a benefit to a third party not directly involved.Įxample: A farmer grows apple trees. For example, just driving into a city centre, will cause external costs of more pollution and congestion to those living in the city.They can also occur from production or consumption. Externalities can either be positive or negative.Externalities occur when producing or consuming a good cause an impact on third parties not directly related to the transaction.
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