What is in economics, what is externity?
In economics, externality is defined as the price or advantage of a transaction that affects various third parties that are not part of the transaction. The effect may be a benefit to a third party called "positive externality", or it can be a price called "negative externity". Externalities interfere with market efficiency, as prices in individual transactions will not reflect the costs or benefits stored by externality. Governments will often strive for these external factors through different methods of regulation.
The efficient market is a market that will find an ideal price for the general benefit of the company in the manufacture of good or providing a service with respect to supply and demand. There are few transactions that do not include unforeseen externality that lends society or the benefits of society in general and disrupts this efficiency. This is the result of the fact that externalities are generally not involved in both privasities and consumers TE when making transactions because it is difficult to seeTit in connection with individual transactions.
The classic example of negative externality is a polluting society. This hypothetical company, which creates widgets, takes into account the demand for their product, production costs and any overhead in the operation of their Widgets factory at determining their price. Likewise, the consumer will consider only what he wants to pay for the ownership of the widget when deciding whether to buy the item. What none of the parties consider is the social cost of making widgets that accidentally pollute the air surrounding every place where the Widgets factory is located.
Externity may not be negative. For example, the growing prevalence of education in society is an example of an economic event with a number of positives. Any company that is inhabited by well -educated people will benefit from the knowledge that arises from time and money spentH by those people for their education. Technological and medical progress resulting from this knowledge will benefit not only those who carry out such development, but also those who belong to a society that has access to the progress that its educated citizens have made. These advances are examples of positive externalities.
Governments will try to take these factors into account through various regulations to reduce negative externalities and support activities that lead to positive externalities. Criminalization of drugs to discourage their use and subsequent destructive effects, such as increasing violent crime, is one of the methods. Higher taxes of unhealthy products such as tobacco and alcohol are designed to discourage their purchase and consumption. In addition, governments can promote positive externalities through subsidies that are laying costs or consumption of goods or services that have a beneficial impact on its company.