Microeconomics
Microeconomics
2nd Edition
ISBN: 9781464187025
Author: Austan Goolsbee, Steven Levitt, Chad Syverson
Publisher: Worth Publishers
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Chapter 17, Problem 1RQ
To determine

The negative and the positive externalities.

Expert Solution & Answer
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Explanation of Solution

When a cost is imposed on the third party who is not directly involved in an economic transaction is called negative externality. An increased pollution is one of the best examples of negative externality which imposes costs on other people or firms who are not directly involved in it. On the other hand, the positive externality is a benefit conferred on the third parties who are not directly involved in an economic transaction. The education can be considered as an example of positive externality which provides the benefits to people who are not directly involved in it.   

Economics Concept Introduction

Positive externality: The positive externality refers to the spillover of benefits to the third party other than the immediate market participants. Thus, the third person is benefited without paying for it.

Negative externalities: The negative externality refers to the spillover of costs to the third party other than the immediate market participants.

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