Externalities are the business losses and benefits which are not reflected on the prices of goods and services. These effects are revealed as a result of production or consumption of goods. One can define private, external and public losses and benefits. The external effects which lead to the reduction of the quality of the production of the certain firm and the usefulness of the product for the consumer are called the negative ones (the overproduction of the goods with the negative external effects, for example, negative impact of the emissions from motor vehicles). If the effects increase the quality of production, they are called the positive ones. During the positive external effect the good will be underperformed with the positive external effect.
According to the direction of functioning the externalities are divided into the certain forms: there are externalities of production, consumption and the mixed ones. According to the character on the influence on the subject they are divided into technological (the consequences of the economic activity, which are not embraced by the market processes) and financial ones (the result of the price changes on the factors of production).
Externalities can be reduced only with the influence of the government and the direct treaties between the manufacturers and consumers of the external effects. The existence of externalities is quite an interesting question. Experts say that the effects appear when there is a well-developed market of the one goods and there are no markets of the other ones, while the production involves the costless resource. One of the most important reasons of the existence of externalities is the absence of the property rights on the products.
If one is interested in economics, he is supposed to improve his knowledge on the details of this science, for example, the issue on externalities. The student is expected to observe the problem in detail, explain what the term “externalities” means and to what branch of economics one can define it. The young person has to explain the aspects and peculiarities of externalities, their origin, the rules of their functioning, their positive and negative impact. One is able to observe the topic relying on the definite examples of externalities which can be met on practice and evaluate the matter objectively.
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