Economics
4th Edition
ISBN: 9781464143847
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 16, Problem 1BCQ
To determine
Concept Introduction:
Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of a producer, then this is known as externalities. It may be a loss for one party and gain for the other.
The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost
Expert Solution & Answer
Explanation of Solution
- The term externality is used when any individual or firm impose costly or deliver cost to the other individual or firm, and these individuals or firm does not have any economic incentive to take these type of costs or benefits into account.
- The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost. For example, if a person is driving a car, then the closed window of the car can be treated as a positive externality for the person sitting inside the car because it is preventing him from pollution, whereas it is a negative externality for the other person who is on the road because that car is emitting pollution to them.
- A considerable role is played by social media websites by externalities. Negative externality for social media can be for example, if the main aim of a social media website is to earn profits rather than providing benefits to customers, then it can done so by posting more and more advertisements due to this, the website might not open as fast as expected by the customers, this can cause frustration in users.
- On the other hand, for example, if social media do not just focus on earning revenue, whereas it also focuses on the helpfulness to the users, then in this case, social media focuses on the
goodwill of the website. Therefore, this gives rise to the positive externalities.
Conclusion:
Thus, social media can create positive as well as negative externalities.
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