The positive side

A positive externality is when a transaction is made between consumer and producer and a third party benefits. Education and vaccination are two major positive externalities because they both help to improve our standard of living, with either less disease or smarter people. Another example would be the development of internets and the computer industry.

This is a network externality where each additional user increases the value of the product for other existing users. An example would be MySpace. When MySpace first came out it was a new way to communicate with your friends. I’m sure in the beginning of MySpace there were very few people who used it or knew about it. Now there are millions of people on MySpace from all over the globe. With the new additions of people it became worth while to join the website because you could communicate with all kinds of people. This has become so popular now that most people have a MySpace or a Facebook.

Many network externalities give people a way of communicating or gaining knowledge. The base transaction is the people creating the product, MySpace, and the people buying the product, but in this case it benefits the society by giving them a way to meet and see people electronically. The same thing follows with the internet it is a way for people to get information at their fingertips.

Externality

An externality occurs when a transaction between a consumer and producer affects a third party. An example of this would be smoking. When a person buys a pack of cigarettes, they smoke them. In doing so, the smoke released from the person or the cigarette goes into the air. The people surrounding the person inhale the smoke and are affected. They are the third party that is affected by the transaction and don’t get any benefit just have to bear the consequences.

In this example, cigarette smoke releases toxins into the air and those toxins are inhaled by others around them. As many of you know, second hand smoke is a major concern for non-smokers. That is why they have made many places non-smoking environments, such as work areas and other public areas. Even here at St. Petersburg College, they have designated smoking areas.

The government has instilled laws that smoking should be prohibited in areas so the externality can be semi-resolved. I think this is one instance where the government made the right choice in making smoking illegal in many common areas so that people who smoke are not affecting people who don’t.

A price floor is a restriction imposed by the government that prohibits the price of a good from falling below a certain level. The most common example of a price floor is the minimum wage but, the government also uses price floors to aid farmers in selling their goods. When the government establishes a price floor, it is usually because the people come to them and ask for help. Normally, the farmers ask for the price of their good to be raise above the equilibrium price.

If the price is set above equilibrium price, then the demand for the good decreases and less people buy the good. The farmers don’t reduce the amount of goods they are making but the public reduces the amount of goods they are buying. The result is a deadweight loss due to overproduction. This overproduction is kind of a result of the government issuing a price floor so to reduce the loss they often buy a portion.

When a price floor is set and the result is the government paying for the unused goods, I my opinion it is a waste of resources. I understand that many farmers are being underpaid for their goods, such as the farmers going on strike a Publix, but the companies buying the goods should have the pay the difference.