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 carsSolar panelsCollege 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 fuelsIllness caused by smoking

What else can the government do about negative externalities?

Possible solutions to externalities

You make the call:• Break into groups of four• Read the news story on “Microbeads”• Consider the possible solutions

discussed in the video clip • Write down your group’s solution to

this externality

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

http://www.songsforicecreamtrucks.com/