and Negative Externalities
The Government monitors and regulates
businesses in both the public and private sectors, to ensure they are complying
with Federal, State and local rules and regulations. The result of these regulations
can be referred to as positive or negative externalities.
Provide an example of positive and
negative externalities in the police (public) sector. What kind of
impact can these externalities have on a budget and the people responsible for
creating the budget?
An externality is referred to as a benefit or a cost that emerges
from an activity and it has an effect on a third party who did not choose to
incur the cost or benefit for example the society. In general terms they are
the costs and benefits that are linked with the production or consumption of a
good or service. Externalities can either be positive or negative based on the
nature of the effect on the third party. Externalities that are negative cause
too much of a product to be produced while positive externalities too little
products to be produced.
Public goods are those that are hard to prevent
people from benefiting from such as clean water, national defense, clean air,
law enforcement and many others. These are examples of positive externalities.
In many circumstances negative externalities occur (Lavenex & Uçarer, 2003).
Examples of Externalities are as follows
The fear of crime is always there. But, a community’s degree of involvement with law
enforcement activities can make all the difference. The role of citizens is essential in preventing crime and is “important since they may alert
authorities, provide evidence, and denounce offenders” (Ferrer, 2008, p.2).
Negative externality occurs when the rate of community involvement is
lower than the crime rate. If
the rate of crime decreases because of community involvement then this would
reduce the marginal productivity of expenditures on law enforcement (Ferrer,
2008, p.8). However, if the rate of crime increases
because the community does not want to be involved then the marginal
productivity of expenditures will increase.
A governing body of a nation can prevent negative externalities by taxing
goods and services that produce spillover costs, and a governing body of a
nation can encourage positive externalities by subsidizing goods and services
that generate spillover benefits.
These externalities have an impact on the
budget as well as the people creating the budget since the costs and have to be
internalized. The market has to spend additional funds in order to compensate
for damages that will be incurred hence there will be an impact on the budget (Papandreou, 1998).
S., & Uçarer, E. M. (2003). Migration and the externalities of European
integration. Lanham, Md. [u.a.: Lexington Books.
(2008, October). [PDF] Breaking the law when others do: A model of law ...
Retrieved from www.econ.upf.edu/.../Rosa%20Ferrer%20BTLWOD%20Revised%20version.
pdf - Similar
A. A. (1998). Externality and institutions. Oxford: Clarendon Press.
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