Monday, May 4, 2009
what would the world be without externalities?
Externality: Dr Red's absence from school.
"A cost of an activity that falls on people other than those who pursue the activity."
(Frank & Bernanke, 2007)
That's "externality", defined by Frank and Bernanke.
It exists in every part of our lives; there's no escaping it.
Since most of the topics have already been covered by my fellow course mates, I shall touch on a point which just happened recently.
On the 4th of May 2009, a fine sunny Monday, I was having a supposedly arranged group meeting with my members when we received a shocking SMS from our friend.
“Don’t come school.
Red sick.”
The 3 of us, who were already in school, got turned off by this informative SMS. The three of us took great efforts to wake up early in the morning at 8am just to make sure we arrive in school on time for project discussion, and lessons at 11am.
Firstly, if we had known that Dr Red would be absent, we would have arranged to meet on another day instead of Monday as Dr Red’s class is the only one on the Monday schedule. The time and effort wasted to wake up early, reach school early and prepare for group discussion have been wasted. This is a negative externality.
The time and effort spent could be used on doing other things which would be beneficial to us. One example would be using it to get ample sleep. I believe that the 3 of us, and others students who actually went to school, did not have the optimal 8hrs of sleep, just to be on time for the lecture.
Well, that is for the externality (positive or negative) that we all know. Now, let me introduce you to a new concept of controlled and uncontrolled externality, alongside with it being positive or negative.
Other than an externality being negative or positive, it can also fall until controlled or uncontrolled. This is a case of uncontrolled externality. Dr Red’s illness taking place was beyond his control. The level of externality is also not controlled. And in cases such as this, the loss is often much higher than cases of a controlled externality. An example of a controlled externality would be smoking or littering, activities carried out due to decisions.
Activities can be classified into 4 groups, A, B, C, or D.
Externalities are important factors which could affect lives vastly, thus, knowing the concept or positive, negative, controlled, or uncontrolled could mean a lot in everyday life.
the legendary CHANSEEEEE wrote this.
Labels: externality
We Loved10:51 AM
April 2008