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Describe what a positive and negative externality is. Give examples of each type. What are the...

Describe what a positive and negative externality is. Give examples of each type. What are the private and external costs of production? Show the effect on a supply and demand curve of a negative externality

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Answer #1

Positive externality is the external benefit a bystander get, that is a third party who is not involved in the transaction directly.

For example- your favourite song is being in the neighborhood. You get happy with the song being played. You get positive externality.

Negative externality is the external cost a bystander or the third party bears.

For example- Firm emitting waste into a river pollutes the atmosphere. Pollution increases the probability of society falling sick. Society gets negative externality due to production of the firm.

Private cost of production is the cost incurred by the producers. It includes raw material, labor, land, etc. cost.

External cost is the cost on society incurred due to production.

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