In order to understand externality, we define it first. Externality is either a benefit or a cost that is incurred by a third party not involve in the economic process (Johnson 2005). Some of the common externalities that everyone encounters can be divided to production and consumption externalities. Again we define the two terms. Production externality is a cost incurred by a party other than the producer that generates a difference between the cost to the producer and the society cost (real cost).
On the other hand, Consumption eternality is a cost or a benefit that is incurred by a third party other than the consumer which generates a difference between the benefits of the consumer and the society benefits (real benefit) (Mikalson 2008). Some externalities that one encounters include overuse disposable items, overuse personal vehicles which emits pollution, toxic material which are dumped in drains or in the air, education, vaccines, congestion on the free way, second hand smoke, research, information. Most of the said externalities are regulated.
This includes personal vehicles which emits pollution, toxic materials which are dumped in drains or in the air, second hand smoke. These externalities are regulated because they are costs that the third party might incur. Overuse disposable items, research, information and congestion of the freeway are externalities that are properly taken care of because it might be beneficial or it might incur cost. Lastly, education and vaccine are externalities that are paid for because it is an externality that is beneficial and should be focused upon (Mikalson 2008).
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