What are externalities?
Whenever a costumer buys a product - food, car, laptop, book, coffee - it will have some type of positive or negative effect towards the third party. Externalities can both be negative or positive -- this depends on the situation.
"Economics a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey." - Urban Dictionary.
"Economics a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey." - Urban Dictionary.
POsitive Externalities +
An example for a positive externality is when an individual purchases a product that will positively on affect a third party involuntarily, but in the correct way. A great example is when you keep your house yard remarkably clean thus the value of our home increases and because of that, our neighbours home also increases. This is a perfect example because most people clean their yards because of personal satisfaction and yeah, because they don't want their home to look bad. But, by doing this, the prices of homes increase.
NEgative externalities -
A negative externality is seen when a consumer purchases a product that will harm society. For example, I buy a very big and fancy car, I am able to drive it around Lima when ever I want and go as fast as I wish. What is the negative effect? I am harming society, maybe I am producing so much Co2 that glaciers in Greenland are melting down, but I don't realise that. These effects are also called spill over effects.
During our economics unit we are looking at a lot of economic terms. Externalities is a great example of one. We are slowly getting into the economics world by, watching the Inside Job, reading "Naked Economics" and by reading a lot of articles.