Externalities and Government Intervention: Prices Do Not Capture All Costs
This situation lets us think of technology as an externality in the market. That is, the introduction of new machinery to a company, with the purpose of increasing the production, using less time, and lowering costs, seems like the perfect move to obtain a successful …show more content…
A Positive Externality Leading to a Market Failure
This is a very interesting topic, in which a positive externality leads us to a market failure. Let’s explain this with the example mentioned above. We have a very big positive externality: a well functioning health care service bringing less sickness and illness. However, despite the fact that it has these positive effects, it causes a failure in the market: having less sickness means less people going to the hospital, and therefore less income for the health care institution. Here one faces the contradiction: economically speaking, what is best for the company? Keeping the technology and offering more effective health treatments, but having less income? Or having constant demand without new technology, but risking human lives. There are aspects beyond economy in this situation which involve moral principles, and ethic.
Technology as a Negative Externality
First of all, to be able to speak about a negative externality, there has to be a