Role Of Externalities In Decision Making

Externalities occur when cost or benefits accrue to a person, or persons,who are not involve in the decision making process. It is improtant to note that externalities can involve either third party costs (where could be a negative externality ) or third party benefits ( this could be a positive externality).
Negative externality
Negative externalities occurs when a decision or activity imposes costs on anyone not involved in making that decision. We can think of it this way, every decision involves some costs to the decision maker; that is the private cost of your choice. Where the COST OF INDIVIDUAL = PRIVATE COST. However, sometimes the decisions imposes costs on others as well, which would be the external cost. Social cost then, is the

The cost you impose on others with your behaviour. In the end, this disparity between cost to you and the cost to society( which is the total of private and external costs) heads to overproduction, if you will, of people driving while on their phones. Why? Because we all rational decision makers-using the cost to us and the benefits to us to make our decisions. Very rarely do you find someone who includes cost to others when weighing a private decision. Essentially you make the decision to hook on the phone whlie driving because you consider only part of the cost - the cost of you (individual). With negative externalities, because the private decisions is based on costs that are too low, from society’s standpoint, the behaviours/habits or products, are overproduced from society’s

Just as an individual can make choices that impose costs on others, you can also make choices that result in benefits to others. If that is the case, then social benefits equal the private benefits/benefits to the decision maker, add with external benefits/benefits to others. In positive externality, social benefits exceed the private benefits (SOCIAL BENEFITS > PRIVATE BENEFITS). As the example that I got from class, education is a positive externality.
If you decided to continue your education; what is the reason could be?
What are the benefits for you by the decision? It might be the intention or because you know that education means a better and high pay jobs after graduation. But what about the society? It as a whole benefits from having a better-educated populace;highly-educated, highly skilled workers tend to be innovators, which helps the economy to move