A summary of the categories of externalities (positive and negative, production and consumption) and how the affect the efficiency of markets.© BrainMass Inc. brainmass.com October 9, 2019, 11:32 pm ad1c9bdddf
A positive externality is a benefit from a good or service that is enjoyed by an economic agent outside the market for that good or service. When a consumer buys a product, and that product produces benefits for the consumers neighbors, the neighbors enjoy a positive externality. When someone plants flowers in their yard, their neighbors get the benefit of seeing flowers in that yard, even though they didn't buy the flowers.
A negative externality is a cost from a good or service that is suffered by agents outside the marekt for that good. So when someone plays loud music that disturbs their neighbors, the neighbors suffer a negative externality. They didn't 'buy' the music, but they are paying a cost because of it.
The two examples I ...
A summary of the categories of externalities (positive and negative, production and consumption) and how the affect the efficiency of markets.