Externalities Essay Example | Topics and Well Written Essays - 1500 words

Externalities - Essay Example , implications will be generated regarding whether Profit Ltd should embrace upon changes due to consideration of externalities or it should attempt to resist the change with the help of lobby groups. The objective of this research paper is to incorporate comprehensive understanding of the concept of externalities and various issues in relation to regulations towards externalities. Externalities occur when the producers or consumers of goods and services unintentionally create indirect impacts upon other producers or consumers of goods and services (Zilberman, 1999). Externality is such an aspect of the economy that although it does not depict any monetary effect upon the producers or consumers of goods and services but bears an impact upon the society’s standard of living. Most of the economists consider externalities to be a market failure. This is because upon the occurrence of externalities, the market prices do not represent the actual marginal costs or benefits coupled with the goods and services dealt with in the market. The concept of externalities can be prominently associated with the activities related to production or consumption or both. Both production as well as consumption externalities occur when the respective activities of production and consumption of one individual inflicts costs and benefits towards the other individuals that are n ot spread precisely in the course of various market operations (Zilberman, 1999). Externalities can be either positive or negative. Positive externalities occur when the individuals’ actions generate benefits for the other individuals. The concept of positive externalities can be best understood through citing the example of technological overrun. The positive externalities in this regard occur when an invention of a firm benefits the entire society due to the technological up gradation along with the firm. On the other hand, negative externalities occur when the action of one individual generates harmful