Externalities are known as the third party or side effects which affect business decisions. Basically externalities occur externally or outside the market, those who are affected are not involved with the decision. These effects are created from production or consumption goods and services. Externalities are divided into two categories: Negative externalities and Positive externalities. Positive externalities are the benefits to third party of business activity which means the effects benefit the business. Negative externalities in contrast are the negative effects of business activity; these effects are unfavorable to the business or the business causes these effects.

Externalities have a huge impact on business development. Business development varies according to externalities. Positive externalities are most likely to benefit the business and increase development whereas negative externalities are more likely to contract business development or the business might encounter ethical issues depending on the externality.

A positive externality include new infrastructure, research and development, research in technology, education, health provisions, increased employment, to name a few.

New infrastructure will benefit the business and allow the business to grow and develop. Other positive externalities such as research and development will not only be useful to the business as they would gain more knowledge and understanding, the research could also be used for promoting the business. Advanced technology is one of the major influences of business development. Increase in technology will allow producers to be more efficient in producing. The effect of technology can help reduce the cost of producers and will reduce cost of production and cost of product/service, favoring consumers. Education is one of the major or the most important source of improving living standards. Education will improve productivity of labour. Training facilities provided to employees will improve productivity. As a result it will increase production of outputs within the amount of resources as employees will be much more efficient, this will also improve living standards throughout the economy, thus developing the business further. Health care provisions will reduce absenteeism and as a result frequency of workers being less sick/ill and unable to come to work would be less; hence the productivity would be more efficient and encourage development.

Join now!

Where positive externalities help a business to grow, negative externalities cause setbacks. Negative externalities are the negative effects of business activity. Negative externalities include, smoke pollution, acid rain from power stations, air pollution from road usage, the social cost of drug abuse, the resulting damage on the environment caused by use of fertilizers in agriculture, external cost of building land in green belt areas (urban development), noise pollution often from taking off and landing of aircrafts and lastly external cost of people’s anti-social behavior. Other negative externalities such as out of town shopping centers, creates an impact on city centers ...

This is a preview of the whole essay