In comparison to this, the education Fred will receive in college will create
positive externalities. In the case of positive externalities, the social bene?t of
the activity is greater than the social cost of it. As a result of his education Fred
will be able to ?nd a job and earn good wages. His employment will therefore
increase the potential for economic growth as the taxes he pays on his wages
will contribute to government revenue.
The social value of Fred’s education takes into account both the private bene?ts
and bene?ts to society of this education. As positive externalities such as
education also bene?t society as well as the individual, the social value curve
lies above the demand curve in demand curves for positive externalities. In
order to achieve the socially optimal quantity of education that should be
bought and sold, the social value and supply curves should intersect.
Both negative and positive externalities present problems for the government.
Negative externalities cause markets to produce a larger quantity than is
socially desirable, and positive externalities cause markets to produce a smaller
quantity than is socially desirable. So, what is the resolution for these problems?
Simple, internalize the externalities. The process of internalizing an externality
involves either taxing or subsidizing goods in order for their respective supply
and demand curves to reach their social optimum.
In the case of negative externalities, the goods which cause the government to
incur social costs would be taxed so that the companies who produce the
goods would be forced to increase the price of ???????????????????)??????????????????Q???????????????????????????????????????????)????????????????????????????????????????????????????????????)?????????????????????????%?????e?????????????????????????)????????)%????????????????????????????????????????????????????????)??????????????????????????????????????????????????Q???????????)?????????????????????????????????????????????????????????)???????????????????????%?????e??????????????????????????????)???????????????????((