externalities exist when
the marginal social benefit of production and or consumption exceeds the
marginal private benefit i.e.
production and/or consumption generate external benefits that may go
under-valued by the market.
plenty of examples of economic activities that can generate positive
training by firms:
This can reduce the costs faced by other firms and has important effects
on labour productivity. A faster growth of productivity allows more output
to be produced from a given amount of resources and helps improve living
standards throughout the economy, thereby shifting the production
possibility frontier outwards.
- Research into new technologies which can then be disseminated for use by other producers. These
technology spill-over effects help to reduce the costs of other producers
and cost savings might be passed onto consumers through lower prices
A well educated labour force can increase efficiency and produce other
important social benefits. Increasingly policy-makers are coming to
realise the increased returns that might be exploited from investment in
human capital at all ages.
health provision and health care reduces absenteeism and creates a better
quality of life and higher living standards.
creation by new small
protection system and
spending on improved fire protection in schools and public arenas
and sporting participation
and enjoyment derived from historic buildings