Positive
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.
There are
plenty of examples of economic activities that can generate positive
externalities:
- Industrial
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
- Education:
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: Improved
health provision and health care reduces absenteeism and creates a better
quality of life and higher living standards.
- Employment
creation by new small
firms
- Flood
protection system and
spending on improved fire protection in schools and public arenas
- Arts
and sporting participation
and enjoyment derived from historic buildings
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