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.
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I do agree with you post and I too believe that education and vaccination are two very important positive externalities. They do raise our standard of living because and they make things easier on all of us. The internet makes things easier to purchase and research goods from the comfort of home. Ebay and Myspace are two of the major companies to take advantage of it's services.
ReplyDeleteI agree as well...it's funny to think that in our lifetime AOL had just come out as the new "communication" to everyone. Now network externalities have really evolved and it seems that new ones keep popping up every couple of months. First Myspace, then Facebook, now Twitter and formspring. People just can't get enough of network externalities!
ReplyDeleteI personally think the idea of possitive externalities is rather interesting. Two people make a transaction and bystanders are benefited, more or less. It seems like politicaly parties could fall into that category as well, the more people who support it benefits the rest of the party more and more.
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