Assignment 2: Externalities
Patrick Sampson
Professor Castorina
ECON 405-Econ Problems and Issues
2/21/2015

Assignment 2: Externalities
Externalities are everywhere. One might ask, what exactly is an externality? An externality is an operation that is acquired by other people unintentionally that can be beneficial or negative, but does not affect the person(s) who initiated the operation or service (Sharp, Register, & Grimes, 2013). With a positive externality, bystanders are able to use benefits; rather it is through consumption or production that does not involve a cost. According to Economics Online, when one experiences a positive externality, it is an incremental benefit that is perceived by society that causes a shift on the demand curve to the right and has a net welfare loss ("Positive Externalities," 2015). When nonparticipants experience a negative externality, that party will have a cost-effect associated with the good or service received. This paper will review three externalities (positive or negative), determine why the externality exists and provide a solution that will make these externalities less severe if applicable, and analyze the different stakeholders would be involved and their involvement with the externalities. To begin, the three externalities that will be reviewed will be education, pollution, and freelance musicians.
When people seek a higher education, it benefits everyone which would be a positive externality. When people are educated, they are able to make more informed decisions and also tend to vote more. Also, through college grants and loans for education, it eliminates the social economic issues that income may hold on individuals, and allows everyone to create their own futures (Positive Externalities and Education, 2015). An externality exists because people have not participated in one’s education will benefit from their success, for example, a family member. This could be that one may be able to provide more advice on complex issues or being able to provide financially for their family due to having an education and making more money. Since education is not a negative externality, it may not be necessary to wonder on less severe options. Stakeholders that would be involved this positive externality would be the government, financial institutions, and teachers. The government can provide grants and loans to people in need. Financial institutions can provide loans as well to pay for higher education. One of the key factors of this externality would be teachers, who would teach others to think on a scholarly level.
The next two externalities that will be reviewed are pollution and freelance musicians. Pollution is considered a negative externality. With pollution, there will be always a losing party rather it’s the earth or our personal health. Some pollution is due to companies having property rights over certain resources to utilize certain allotted amounts of waste or pollution within a specified timeframe ("Negative externalities," 2015). Another example of an negative externality that does not relate to corporation are personal vehicles which have exhaust that is dangerous to others health and the environment. A solution to managing these negative externalities could be pollution permits to limit the amount of harm over time and the stakeholders that could be involved in this externality could be the government, local legislative body, and humanitarian organizations ("Negative externalities," 2015). On the other end of the spectrum, we have freelance musicians which would be a positive externality. An example would be going to Beal Street in Memphis, TN and enjoying some of the local music for free. Freelance music would also not be viewed as a negative thing for consumers, so it will also not be necessary to come up with solutions to resolve the externality. But, one may want to leave tips for the musicians so that they can continue to offer free services for the public. The different stakeholders that may be involved would be local business owners, local legislative, and law enforcement.
In conclusion, this paper reviewed briefly three externalities being positive and negative, determined why the externality exists and provided a solution that would make these externalities less severe that were applicable. Also, each externality was analyzed to determine the different stakeholders would be involved with the externalities. After reviewing over externalities, one can now realize that externalities can have positive negative effects on consumers.

References
Negative Externalities. (2015). Retrieved from http://www.economicsonline.co.uk/Market_failures/Externalities.html
Positive Externalities. (2015). Retrieved from http://www.economicsonline.co.uk/Market_failures/Positive_externalities.html
PublicEcon - Positive Externalities and Education. (2015). Retrieved from http://publicecon.wikispaces.com/Positive+Externalities+and+Education
Sharp, A., Register, C., & Grimes, P. (2013). Economics of Social Issues (20th ed.). New York, NY: McGraw-Hill Companies, Inc.