Topics: Externality, Market failure, Welfare economics Pages: 4 (1244 words) Published: December 8, 2012
(a) What is externality? What is the economic impact of an externality?

Externalities issue is important, not only involves a moral issue but also involves economic issues in terms of resource utilization and external cost impact of positive and negative such as the cost of treatment and other costs.

Definition| Source|
In economics, an externality, or transaction spillover, is a cost or benefit that is not transmitted through prices or is incurred by a party who was not involved as either a buyer or seller of the goods or services causing the cost or benefit.| Wikipedia| In economics, an externality is defined as a cost or a benefit stemming from a transaction that affects various third parties who are not part of the transaction.| Wisegeek| Define externality as cost or interest from a market transaction that not imposed any price. It refers externality occur effect to third personnamely other than seller and buyer. Cost or interest discounted inproduction (seller) or usage (buyer).| Hyman (2002)| Eksternaliti is activity some party (household or firm) influence utility possibility or other party production without incurred cost.| Brodway (1979)|

The implication are as follows:
* Party which produces the effect has no incentive to take if, whether the effect benefit of prejudice party influenced. * Party thet influence might be using total resources that is inefficient in conducting their activity.

Economic impact of externality| Positive externality| Negative externality| Explanation| Also called beneficial externality, external benefit, external economy, or Merit goods.| Also called external cost or external diseconomy.| | External mold which brought good effect result economic activity which is being carried out by a firm.| Extenal mold that harmful result economic activity which is being carried out by a firm.| | Similarly, if too many positive externalities fall outside the participants in a transaction,...
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