What are external economies?
external economies are the benefits that are created when activity is carried out by a company or other type of subject, and the benefits that others who are not associated with this entity. The entity that actually drives this activity does not receive external economies, although the creation of these benefits for outsiders usually has no negative impact on this entity. The nature of the benefits may include inspiration for a new idea or even something as simple as providing a visual image that the viewer considers attractive.
One way to understand how external economies occur is to consider the display window in a local furniture store. The purpose of the window is to present goods on the display in the most attractive way, hopefully they will make potential customers to stop, see the display and enter the store and make a purchase. In this way, trade generates direct or internal benefits for its efforts. At the same time, if someone passes under the notification is DiPlej, inspired by the arrangement of furniture and goes home to rejoice its furniture in a new way, this individual has received an external economy that has never been carried out by furniture trade.
external economies are the opposite of what is called external discontinity. With the former, some kind of advantage is generated by external parties without actually starting any benefits for business involved. This includes the creation of a loss for the outside, and this discount does not affect the originator of this activity.
One aspect of external economies is that the benefits of this type will have no impact on the prices of goods and services on the market. The furniture store that created a window display will not modify its prices on the basis of the fact that passers -by received the advantage of the inspiration for the rearrangement of its furniture. From this point of view, the creation of external economies has no meaning for the market price of goods or marketthe price of services provided by the company. This is true, even if many people notice the displays and develop several different ideas about how to re -order furniture in their homes. As long as the prices for goods are competitive with similar goods offered for sale by other companies, supply and demand will affect market prices without the actual consideration of external economies resulting from the attempt of these goods.