What Are Positive Externalities?

Title:
What Are Positive Externalities?
ASR Confidence:
1.00
Description:

MRU explains positive externalities with a real-world example: influenza vaccines that help prevent the spread of the disease. Patients who get the shots bear all of the costs (monetary and otherwise), but society at large benefits from reduced transmission, preventing some people from getting the flu even if they weren’t vaccinated.

A few highlights from the video:

The Definition of Positive Externalities. Externalities occur when a decision or a transaction between two parties also affects third parties (bystanders). A positive externality occurs when the transaction provides benefits to bystanders. Tidying up your yard is a classic example–the whole neighborhood enjoys the benefits of your property looking nicer.

Graphing Positive Externalities. We can plot positive externalities on a supply and demand graph, using a new line for social value (above the demand curve by the amount of the external benefit). The social value curve intersects the supply curve at the socially optimal quantity.

The Impact of Positive Externalities. The market underproduces a good with a positive externality relative to the efficient equilibrium. Society is worse off due to the undersupply, resulting in deadweight loss. At the efficient equilibrium, where the social benefit curve intersects the supply curve, social surplus—the sum of producer surplus, consumer surplus, and bystander surplus—is maximized.

Be sure to check out our other videos covering negative externalities, as well as public policy solutions to address externalities: Pigouvian taxes and subsidies, Coasean bargaining, tradable allowances, and command and control.

Get our FREE Externalities and Public Goods unit plan: https://mru.io/7kh
Continue learning with practice questions: https://mru.io/h31
Full micro course: https://mru.io/1je

00:00 Negative externality recap
00:27 Positive externalities
00:56 Flu shots
01:22 Social surplus
02:06 Graphing a positive externality
03:27 Value of the last unit the market produces

more » « less
Video Language:
English
Team:
Marginal Revolution University
Project:
Other videos
Duration:
04:58
http://www.youtube.com/watch?v=mK24CU_Nkw4
Format: Youtube
Primary
Original
Synced
Added   by Jenny_PM
Format: Youtube
Primary
Original
Synced
Format: HTML5
This video is part of the Marginal Revolution University team.

Assignments

Pending (52)