Saturday, May 2, 2009
Externalities can be classified under 2 categories - Positive and negative.
Postive externalities are the benefits you receive because someone else pursues a certain activity. Negative externalities are the costs you need to pay because someone else pursues a certain activity.
Ever made fun of or played a prank on someone in class? i'm sure most of you have. at least tried to.
My example of a common externality is making fun of others. Making fun of someone causes both a positive and negative externality.
Lets say one day in school, a class clown pursues the activity of making fun of a certain person in class. This joke makes other people in the class laugh and have a good time at the expense of the poor victim.
The classmates benefit from the clown making fun of the victim. They get a good joke, laugh, and have a good time. They experience a positive externality.
The victim however, experiences a negative externality. Because of the class clown's joke, He is now humiliated and suffers a loss of reputation amongst his classmates for a certain period of time. The humiliation is a negative externality.
-Billy.
Labels: externality
We Loved9:13 PM
April 2008