Positive Externality
Positive externality is an economic concept that refers to the benefit that a third party receives from an economic transaction between two other parties. It is also known as an external benefit or external economy. Positive externalities are the opposite of negative externalities, which are costs incurred by a third party as a result of an economic transaction. Positive externalities can be seen in a variety of situations, such as when a business creates jobs, when a company invests in research and development, or when a company invests in environmental protection.
History of Positive Externality
The concept of positive externality has been around since the early days of economics. Adam Smith, the father of modern economics, wrote about the concept in his 1776 book, The Wealth of Nations. Smith argued that when a business creates jobs, it benefits not only the business but also the community as a whole. He also argued that when a business invests in research and development, it can benefit society by creating new products and services.
In the 20th century, economists began to focus more on the concept of positive externalities. They argued that when businesses invest in research and development, they can create new products and services that benefit society as a whole. They also argued that when businesses invest in environmental protection, they can reduce pollution and improve public health.
Comparison Table
| Positive Externality | Negative Externality |
|---|---|
| Benefits third party | Costs third party |
| Creates jobs | Creates pollution |
| Investment in R&D | Investment in harmful activities |
| Investment in environmental protection | Investment in activities that harm the environment |
Summary
Positive externality is an economic concept that refers to the benefit that a third party receives from an economic transaction between two other parties. It is the opposite of negative externalities, which are costs incurred by a third party as a result of an economic transaction. Positive externalities can be seen in a variety of situations, such as when a business creates jobs, when a company invests in research and development, or when a company invests in environmental protection. For more information about positive externalities, you can visit websites such as Investopedia, The Balance, and the World Bank.
See Also
- Negative Externality
- External Cost
- External Benefit
- Social Cost
- Social Benefit
- Marginal Cost
- Marginal Benefit
- Opportunity Cost
- Opportunity Benefit
- Market Failure
