1.4.5
Positive Externalities
Positive Externalities
Positive Externalities
Positive externalities are beneficial spillovers to a third party or parties, who did not purchase the good or service that provided the externalities.
Private and social benefits
Private and social benefits
- Private benefits are the benefits a person who consumes a good or service receives; or a new product's benefits, that a company invents, that the company captures.
- For example, Apple benefitting from a new technology that they invented.
- Social benefits are the sum of private and external benefits. External benefits are beneficial spillovers which affect third parties.
Positive externalities example
Positive externalities example
- Vaccinations are a good example of a positive externality as they are not only a protection for the individual, but they have the positive spillover of protecting others who may become infected.
- The appropriate public policy response to a positive externality, like a new technology, is to help the party creating the positive externality receive a greater share of the social benefits.
- In the case of vaccines, like flu shots, an effective policy might be to provide a subsidy to those who choose to get vaccinated.
Positive externalities example
Positive externalities example
- This diagram shows the market for flu shots with spillover benefits.
Positive externalities example
Positive externalities example
- The market demand curve does not reflect the positive externality of flu vaccinations (as it only reflects the marginal private benefit), so only QMarket will be exchanged.
- This outcome is inefficient because the marginal social benefit exceeds the marginal social cost. If the government provides a subsidy to consumers of flu shots, equal to the marginal social benefit minus the marginal private benefit, the level of vaccinations can increase to the socially optimal quantity of QSocial.
1Microeconomics
1.1Competitive Markets: Demand & Suply
1.2Elasticity
1.3Government Intervention
1.4Market Failure
1.4.1Types of Market Failure
1.4.2Introduction to Externalities
1.4.3Negative Externalities
1.4.4Policy for Negative Externalities
1.4.5Positive Externalities
1.4.6The Deadweight Welfare Loss of Externalities
1.4.7Case Study - The Externalities of Education
1.4.8Public Goods & the Free-Rider Problem
1.4.9Asymmetric Information
1.4.10End of Topic Test - Market Failure
1.4.11Application Questions - Market Failure
1.5HL: Theory of the Firm & Market Structures
2Macroeconomics
2.1The Level of Overall Economic Activity
2.2Aggregate Demand & Aggregate Supply
2.2.1The Aggregate Demand Curve
2.2.2Components of Aggregate Demand
2.2.3Shape of the Aggregate Demand Curve
2.2.4Shifts in Aggregate Demand
2.2.5IB Multiple Choice - Aggregate Demand
2.2.6Short & Long-Run Aggregate Supply
2.2.7Alternative Models of LRAS
2.2.8Equilibrium in the AD-AS Model
2.2.9Output Gaps & the AD-AS Model
2.3Macroeconomic Objectives
2.3.1Introduction to Unemployment
2.3.2Limitations of Unemployment
2.3.3Types of Unemployment
2.3.4Causes & Impact of Unemployment
2.3.5Defining Inflation
2.3.6Measuring Inflation
2.3.7Use of Index Numbers
2.3.8The Consumer Price Index
2.3.9Consequences of Inflation
2.3.10Causes of Inflation
2.3.11Inflation & Unemployment Tradeoff
2.3.12The Short-Run Phillips Curve
2.3.13The Long-Run Phillips Curve
2.4Economic Growth, Poverty & Inequality
2.5Fiscal Policy
2.6Monetary Policy
2.7Supply-Side Policies
3The Global Economy
3.1International Trade
3.2Exchange Rates
3.3The Balance of Payments
3.4Economic Integration
3.5Terms of Trade
3.6Economic Development
3.7The Role of Domestic & International Factors
3.8The Role of International Trade
3.9The Role of Foreign Aid
Jump to other topics
1Microeconomics
1.1Competitive Markets: Demand & Suply
1.2Elasticity
1.3Government Intervention
1.4Market Failure
1.4.1Types of Market Failure
1.4.2Introduction to Externalities
1.4.3Negative Externalities
1.4.4Policy for Negative Externalities
1.4.5Positive Externalities
1.4.6The Deadweight Welfare Loss of Externalities
1.4.7Case Study - The Externalities of Education
1.4.8Public Goods & the Free-Rider Problem
1.4.9Asymmetric Information
1.4.10End of Topic Test - Market Failure
1.4.11Application Questions - Market Failure
1.5HL: Theory of the Firm & Market Structures
2Macroeconomics
2.1The Level of Overall Economic Activity
2.2Aggregate Demand & Aggregate Supply
2.2.1The Aggregate Demand Curve
2.2.2Components of Aggregate Demand
2.2.3Shape of the Aggregate Demand Curve
2.2.4Shifts in Aggregate Demand
2.2.5IB Multiple Choice - Aggregate Demand
2.2.6Short & Long-Run Aggregate Supply
2.2.7Alternative Models of LRAS
2.2.8Equilibrium in the AD-AS Model
2.2.9Output Gaps & the AD-AS Model
2.3Macroeconomic Objectives
2.3.1Introduction to Unemployment
2.3.2Limitations of Unemployment
2.3.3Types of Unemployment
2.3.4Causes & Impact of Unemployment
2.3.5Defining Inflation
2.3.6Measuring Inflation
2.3.7Use of Index Numbers
2.3.8The Consumer Price Index
2.3.9Consequences of Inflation
2.3.10Causes of Inflation
2.3.11Inflation & Unemployment Tradeoff
2.3.12The Short-Run Phillips Curve
2.3.13The Long-Run Phillips Curve
2.4Economic Growth, Poverty & Inequality
2.5Fiscal Policy
2.6Monetary Policy
2.7Supply-Side Policies
3The Global Economy
3.1International Trade
3.2Exchange Rates
3.3The Balance of Payments
3.4Economic Integration
3.5Terms of Trade
3.6Economic Development
3.7The Role of Domestic & International Factors
3.8The Role of International Trade
3.9The Role of Foreign Aid
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