Unit 1 Area of Study 2

An Externality is any effect on a third party that results from economic activities.

 Negative Externalities are the unwanted social or financial costs of a growing economy.  Examples include: Destruction or Depletion of Natural Resources

 Positive Externalities is the spillover of benefits that third parties enjoy as the result of economic decisions.  Examples include: Painting a House benefits the neighbourhood Education benefits society Vaccinations Business investing in emissions reductions

 In growing production, various externalities arise. Externalities can be costs (negative) or benefits (positive).  Negative externalities include pollution, social costs and financial costs of production that may be passed on to a third party, which can reduce our living standards.  Positive externalities are the benefits enjoyed by third parties that result from production and may include vaccinations, education and health care.  Correcting externalities involving market failure requires government policies to affect decision makers.