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Externalities

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Introduction

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. ...read more.

Middle

Noting that our resources are scarce, using up the environment will add onto the scarcity, which will cause the prices of goods and services to rise, therefore businesses will have difficulty pleasing consumers and the market is liable to inflation. Future generation should also be considered in this situation, as negative externalities affect future growth. The usages of many of these environmental resources are not even charged, such as overuse of waste facilities. Negative externalities could also dominate the positive externalities, such as anti-social behavior of people would cause inefficiency of labor productivity. Therefore these externalities containing costs and benefits contribute to business development. As a result, in the competitive market, beneficial or inadequate goods might be produced and consumed. As we have seen before, business development depends on externalities. How a business is affected by these externalities will be illustrated below by means of Bangladesh's business development. Most production systems can be an aspect of both positive and negative externalities. Some of the positive externalities that Bangladesh has are its agriculture system. These agriculture systems are extremely efficient and can produce large amounts of food. These agricultural systems can also produce outputs which can be used for energy. But the processing of the output in Bangladesh uses more man-labor than technology. ...read more.

Conclusion

Power supply is unreliable in the country. Businesses come across problems with lack of electricity and power and therefore they need their own back-up power which increases cost. Specific negative externalities could be the unavailability of gas supply in certain parts of Bangladesh such as Bogra and Khulna, this limits the growth of gas-based industries and obliges them to use an alternative resource, and again this increases cost and efficiency of labor in competition with other industries. Another negative externality is the strikes and blockades that are frequent in the country, whether aroused from rebelling against the government or the business. This highly affects the business as workers are unable to come to work, threatened by the resulting violence and blocking transport. As a result productivity is decreased. Although, Bangladesh earns huge profit from exporting goods such as ready made garments and such, the factories contribute to environmental hazards, which is a huge negative externality. Lastly, Bangladesh is relatively small for the large amount of population it restrains. Therefore as the economic growth increases, more buildings are being built, which not only contribute to environmental hazards but also to lack of space. As a result, the buildings are compiling up and are constricting. This causes increase in traffic and thus contribute to cost of time, for example, workers are likely to be late to work and therefore the productivity decreases, "time equals money". ...read more.

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