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Perhaps the best definition suited to the economic term of externality is the uncompensated impact of one person's actions on the welfare of a bystander. Should the effect be beneficial, it is termed positive externality, and the reverse is naturally negative externality. Using economic language, it can be said that markets maximize total surplus to both buyers and sellers. This is a "norm" and reflective of efficient markets. In the case of a market not providing efficient markets, government policy may be needed to improve efficiency. Negative externalities may be pollution from exhaust and factory emissions. Positives may be research into new technologies.
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What is the economic term for the indirect effects of markets that are not corrected within the markets?
Externalities. A more proper definition for an externality is a transaction between two economic agents which affects a third, non-participating agent. Whether or not externalities are corrected for in a market is a matter of debate in economic theory.
Provide a diffinition of the term economic?
provide a definition of the term economics
What is spillover?
An economic advantage coming from an unpredicted source that allows a firm to benifit from it, also called an externality.
State three possible causes of market failure?
Externality - Negative Externality And Positive Externality the positive externality is a cause of a market failure because producers do not take the benefits of externality into account to society, therefore they under-produce the good that generates it , a negative externality happens where MSC > MSB. Factor Immobility And Market Power .
How does an externality relate to socially optimal quantity?
In the presence of an externality (positive or negative), individual economic actors produce a socially inefficient amount of a good (since they do not include social gains or costs in their calculations). Thus, in general, when there is a Negative externality, firms are overproducing a good with a social cost and thus the optimal equilibrium occurs at decreased production. Positive externality, firms are underproducing a good with a social benefit and thus the optimal equilibrium occurs at increased production.
