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1. Externalities are third party consequence of some other action. They can be positive or negative externalities and they impose a benefit or cost to a third party. Identify a positive and a negative externality. Discuss the benefits and costs associated with each type of externality. What happens to the Supply and/or Demand curve in each of your examples?

2. Economies of scale is a concept that says as firms get larger, they become more efficient and their costs of production decrease. This being the case, why don't firms continue to get infinitely larger? Use at least 2 examples, including graphs, in your response.

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I won't define what externality is, since you have a pretty clear definition in the question. I will start by giving examples and explaining them.

Positive: A musician playing music in a shopping mall.

Benefits: shoppers listen to music for free and this increases their welfare (they are happier as they are shopping). Specifically speaking, this free music will give shoppers an equivalent amount of monetary benefits (for instance, for some shoppers, listening to this music may be the same as giving them a 5% discount)

Result: This will likely to increase the demand in shopping in this mall because shoppers value shopping in this mall better than shopping in other places.

Negative: A factory ...

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Consumer Lock-In and Network Externalities

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