Post by RS Davis on Oct 30, 2003 19:28:41 GMT -5
[glow=red,2,300]Jacob Halbrooks Wrote:[/glow]
The idea of externalities is highly intuitive; it makes sense that the actions of one affect the happiness of others. A positive externality occurs when one's actions benefit people who were not directly involved in exchange. Think of the benefit a man receives when passing a beautiful woman on the sidewalk.
On the other hand, a negative externality imposes a cost on third parties. A factory polluting your air or water supply is a typical example of one. Many economists use the idea of externalities as the basis for public policy recommendations: a tax or subsidy to "make up" the external costs. In fact, most government functions at one time or another have been justified on the basis of externalities. But do externalities really have a meaningful role in economics?
The idea of externalities is highly intuitive; it makes sense that the actions of one affect the happiness of others. A positive externality occurs when one's actions benefit people who were not directly involved in exchange. Think of the benefit a man receives when passing a beautiful woman on the sidewalk.
On the other hand, a negative externality imposes a cost on third parties. A factory polluting your air or water supply is a typical example of one. Many economists use the idea of externalities as the basis for public policy recommendations: a tax or subsidy to "make up" the external costs. In fact, most government functions at one time or another have been justified on the basis of externalities. But do externalities really have a meaningful role in economics?
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- Rick
