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Externality
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The uncompensated impact of one person's actions on the well-being of a bystander
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Negative Externality
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adverse effect (aluminium plants emit smoke which is a health risk)
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Positive Externality
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beneficial impact (education- a better worker, higher wages, more informed voters, lower crime rates, use of technology)
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Internalizing the Externality
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Altering incentives so that people take account of the external effects of their actions
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Positive Externality Technology Spillover
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positive impact to other firms. Tech progress is the key to rising living standards
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Public Policies Toward Externalities
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-Command and Control policies (regulate behavior directly ex. regulation of pollution)
-Market Based incentives (allow the market to solve their own problem)
-Market Based incentives (allow the market to solve their own problem)
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Corrective Tax
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a tax designed to induce private decision makers to take account of the social costs that arise from a negative externality
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