This week we were discussing, among other things, the topic of externalities within the realm of Microeconomics. After thinking about the idea of externalities I would argue that external costs and benefits are determined on an individualized basis.
One of the examples that was used in class this week was that of a residential development and the external costs and benefits that are associated with that development. A resident of a home in that area will see an increase of traffic within their community as a result of the development, they will also see more traffic in their everyday lives in the shopping centers, restaurants, and stores that they are accustomed to using. Initially, this can be a external cost for many people due to the inconveniences that are placed upon them, but it can be an external benefit for the owners of the area stores as well as the employees who work in those stores.
Look at the same community two years after the development has been built and the situation can be completely reversed. The neighboring residents who felt an external cost immediately may now have seen the value of their property rise due to increased demand in the area. Instead of having a very limited number of restaurants to eat in, grocery stores to shop in, and shops to visit there are now a variety of national retailers, national eateries, and national grocers. This variety provides not only choices that were not previously there but also most likely provides a financial savings due to the additional competition. Consequently, the area stores that previously serviced the area have seen an increase in competition that most would not survive due to a national retailer's ability to provide lower prices by bulk ordering. Initially their business was booming but the growth of the area eventually wound up costing them their business.
All of the above is hypothetical but I believe it points out that the idea of externalities is one that can be relevent to the individual and can change for those individuals as time goes on.
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I agree with the points you make. In my development, they recently put up a gate because many people wanted it to stop the flow of traffic cutting through the neighborhood etc etc. Nevertheless, a small committee made the decision to install the gate, without the consent of all the residents...However over time, there has been many problems with people running through the gate with their cars which has lead to the increase in fees to fix it and put it security cameras. What first seemed like a good idea became a negative externality for those residents not personally involved in the vote for a gate.
ReplyDeleteI agree with the statements, but like you said in the beginning it is all based on the individuals point of view. Now you might have people think that the rise in property is good, but what about the people who bought their house their wanting to raise a family in a little quite neighborhood and now has all the hussle and bussle of people going in and out of their neighborhood and going into the shops.
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