Are all the costs of making the good included in the price? Externalities

If you’ve ever been helped or harmed by someone else's decisions, you’ve experienced an externality.

Externalities An externality is an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume EOC Study Guide Microeconomics # 4

Positive Externalities A positive externality is a beneficial side effect of an action that is felt by other

How Can Legislators encourage positive externalities? How can they get consumers to buy more of a good? ▫By subsidizing consumers for purchasing the good How can they get producers to make more of a good? ▫By subsidizing producer for making the good Examples: Electric cars Solar panels College education

Negative Externalities A negative externality is an adverse side effect of an act that is felt by others

Are all of the costs of a business “paid” by the business? Hot sauce video clip

How Can Legislators prevent negative externalities from causing market failure? How can you get consumers to buy less of a good and/or producers to make less of a good? ▫By taxing goods that are overproduced Examples: Damage caused by fossil fuels Illness caused by smoking

Possible solutions to externalities

Real Life Examples of Dealing With Externalities: Example One: ▫Cabin owner who didn’t want the sheep to be trailed through his property

Real Life Examples of Dealing With Externalities Continued: Example Two: ▫The homeowner who didn’t want the ice cream truck to go down his street