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Externalities, Positive and Negative

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What is the definition of an externality? What is the distinction between positive externalities (positive spillover costs) and negative externalities (negative spillover costs)? Why do externalities exist?

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Solution Summary

A discussion on types of externalities and the reasons for their existences are examined.

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Externalities are costs that are not captured in market prices. Postitive externalities are those that would make a price lower than it should be. For example, the benefits of a highly education population make society better for everyone, ...

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