Externalities

Externalities

Positive Externalizes

Examples

Negative Externalities

Examples

Merit Goods

Example

Demerit Goods

Example

Cigarettes, alcohol, gambling.

When you use cigarettes, the nicotine gives you with a calming sensation that provides utility. However, there are additional costs not only to you, but to society as a whole. Smoking and second-hand smoking can worsen your and other people's health and increase the risk of illness. Then there is cost of equipment and labor to treat you if you get lung diseases for example.

Four Types of Externalities

Negative Externalities of Production

MSC > MPC

Positive Externalities of Production

Negative Externalities on Consumption

Positive Externalities of Consumption