What is the Difference Between Positive and Negative Externalities?
🆚 Go to Comparative Table 🆚Positive and negative externalities are spillover costs or benefits that occur when the production or consumption of a good or service affects a third party not directly involved in the transaction. Externalities can be both positive or negative and can stem from either the production or consumption of a good or service. Here are the differences between positive and negative externalities:
Positive Externalities:
- Occur when there is a positive gain on both the private level and social level.
- Examples include research and development (R&D) conducted by a company, which increases private profits but also benefits society by increasing knowledge and innovation.
- Education is another positive externality, as it increases the knowledge and skills of individuals, which in turn benefits society through increased productivity and economic growth.
Negative Externalities:
- Occur when the social costs outweigh the private costs.
- Pollution is a well-known negative externality. A corporation may decide to cut costs and increase profits by implementing new operations that pollute the environment, leading to negative consequences such as decreased quality of life, higher healthcare costs, and forgone production opportunities.
- Commuting to work or a chemical spill caused by improperly stored waste are also examples of negative externalities.
Governments can discourage negative externalities by taxing goods and services that generate them, ensuring that the firm pays the full cost of the negative externality, which may lead to reduced production and pollution. On the other hand, governments can encourage positive externalities by subsidizing goods and services that generate them, making them more affordable and accessible to the public.
Comparative Table: Positive vs Negative Externalities
Here is a table comparing positive and negative externalities:
| Feature | Positive Externalities | Negative Externalities |
|---|---|---|
| Definition | Benefits to third parties who are not directly involved in a market transaction | Costs to third parties who are not directly involved in a market transaction |
| Effect on Social Costs | Social costs are lower than private costs | Social costs are higher than private costs |
| Impact on Market Equilibrium | Market equilibrium quantity is too little | Market equilibrium quantity is too much |
| Examples | Research and development (R&D) conducted by a company, increasing private profits and social benefits | Pollution caused by production, increasing costs to society |
Positive externalities occur when there is a positive gain on both the private level and social level, often resulting in underproduction in the market. On the other hand, negative externalities occur when the social costs outweigh the private costs, leading to overproduction in the market.
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- Positive vs Negative Feedback Loops
- Positive Punishment vs Negative Punishment
- Positive vs Negative Control
- Positive vs Negative Reinforcement
- Positive vs Negative Catalyst
- Positive Correlation vs Negative Correlation
- Negative vs Positive Gearing
- Negative vs Realism
- Positive vs Negative Tropism
- Positive vs Negative Gene Regulation
- Liability vs Negligence
- Positive vs Negative Ion
- Negligence vs Gross Negligence
- Macroeconomics vs Microeconomics
- Punishment vs Negative Reinforcement
- Internal vs External Business Environment
- Nuisance vs Negligence