Externalities

When you decide to drive to school in the morning, do you consider how that choice affects others? Adding another car to the road increases congestion, which means others’ commute times are impacted. When a firm releases pollutant during its production process, the pollutants in turn affects the health of others. Economics is not just the study of choices, but also, how those choices affect others. Some choices impose a cost on others like increased commute time or health problems. When our choices affect bystanders, economists call those effects externalities. In this video, Professor John List dives into this concept.