Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 4 The Economics of the Public Sector
Chapter 10 of 36 Externalities
Section 18 of 18
…
Economic externalities, summary.
Mostly from ChatGPT:
Economic externalities refer to the costs or benefits that affect third parties who are not directly involved in a transaction or activity.
These can be positive or negative.
They occur when the actions of individuals or firms have unintended side effects on others, leading to market outcomes that are not socially optimal.
…
The Two Types of Economic Externalities
-Negative Externalities:
Occur when an activity imposes costs on third parties.
Examples:
Air pollution from factories affecting nearby residents.
Traffic congestion caused by excessive driving.
Noise pollution from construction.
-Positive Externalities:
Occur when an activity generates benefits for third parties.
Examples:
Education improving society’s overall productivity.
Vaccination reducing the spread of infectious diseases.
…
Graphical Representation
1-Negative Externality, Figure 2:
The private cost supply curve with lower price and more quantity supplied does not include external costs.
The social cost supply curve with higher price and less quantity supplied includes external costs.
…
2-Positive Externality, Figure 3:
The private value demand curve with less quantity supplied does not include external benefits.
The social value demand curve with higher price (to be made up by government subsidy) and more quantity supplied includes external benefits.
…
Government Responses to Externalities include:
-taxes on negative externalities, such as taxes on pollution emissions
-subsidies for positive externalities, such as government paying all or part of the cost
Understanding and addressing externalities is crucial to achieving more efficient market and social outcomes.
(end of chapter 10)
… …
Congratulations! 10/36 = 28% of way to becoming a competent economist.

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