What Are The Types Of Externalities?

What Are The Types Of Externalities?
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  1. There are two major types of externalities viz positive externality and negative externality. Positive externalities is the positive effect an activity imposes on an unrelated third party, it can arise either on the production side, or on the consumption side. While negative externality is the negative effect it can also arise either on the production side, or on the consumption side as in positive externality.
    The other types of externalities are:
    1. Inter Firm (Production) Externalities: If production of goods by one firm has a positive or negative impact on another firm.
    2. Beneficial Externalities: The activity of one firm may also have beneficial effect on others. For example, if a power plant is set up near a coal mine, hopefully, more coal can be extracted due to an abundant supply of power.
    3. Externalities in Utility (Consumption Externalities): Externalities also can occur if the activities of an economic agent directly affect an individual’s utility.
    4.Public Goods Externalities: Public goods create externality problems because such goods can be allocated through the market and those who enjoy such goods do not pay prices directly.

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