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    Negativeand positive externalities of airline industry

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    Find two sources to help you answer the following questions about the airlines industry :
    o Research any negative or positive externalities the industry produces.
    i) Does the transaction of a buyer and seller directly affect a third party? Is the effect a negative or positive externality? Explain.
    o Research whether the industry produces public goods or common resources.
    i) Are the goods or resources rival, excludable, or neither? Explain.

    ? Organize your research for this week using the Annotated Bibliography

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    Solution Preview

    'Externalities' is the economic term for the costs (e.g. environmental and social) of an economic activity which are not borne by the operator, but instead by the wider community. Hence externality occurs when a decision causes costs or benefits to third party. It can can be positive and negative.
    For example, if a forestry operation contributes to species loss or habitat destruction and these 'costs' are not somehow paid by the operator and thus reflected in the price of the final product, they will be 'paid' by the wider community - locally, nationally or globally. They are thus 'externalities'. Negative externalities are often viewed as examples of market failure, in other words, the market mechanism creates a level of consumption / production that is higher than society desires.

    A negative externality occurs when the by-product is viewed as having a social cost.
    The externalities of the oil industry are pollution.

    Some instances

    For instance, when a plane flies it creates air pollution. This air pollution can have very harmful effects on other people. Interestingly, you - as an individual - do not account for this in the costs of flying plane, however society pays the costs of dealing with air pollution. Therefore, air pollution is a negative externality.
    America's flight delay crisis begins right at the airport. Twelve airports account for half of all flight delays, ...

    Solution Summary

    This discusses the negative and positive externalities of airline industry in detail with illustrations