Externalities in everyday life

We’ve been learning about externalities recently in class. An externality is something that affects a third party not directly involved with a transaction. Externalities can be either negative or positive, last week we focused more on positive externalities, and so will I in this week’s blog because who enjoys the negative ones anyway?

Externalities can be beneficial! A positive externality is one in which a third party not directly involved with a transaction gets some benefits of that transaction! We got several examples in class: vaccines, a neighbor with well kept grass, knowledge spillovers, and network externalities including the internet. This got me thinking about everyday positive externalities in my own personal life. I thought of some examples. First, my mom is paying someone to redo the kitchen. I personally have not contributed any money to the renovations, yet I will still enjoy the benefits of the kitchen once it is finished. We also just purchased Netflix, which means my friends can get the benefit of watching movies with me without actually paying or being involved directly in the transaction. I also have a friend of the family who recently bought a beautiful house in Georgia, and my family will get to go visit and stay with them. This is another positive externality for me because I did not have direct involvement with the transaction of purchasing the house. I have many examples of positive externalities in my own life.

I know positive externalities in the context of the economy as a whole can result in an undersupply of goods, and are still considered inefficient because they can result in a deadweight loss to society, but on a more personal scale we deal with our own personal positive externalities on a daily basis. Feel free to share some of yours!