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Topic Videos

Key Diagrams - Positive Production Externalities

A-Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 15 May 2022

In this video we take a few minutes to look at examples of and analysis of positive externalities in production.

Key Diagrams - Positive Production Externalities

Externalities are spill-over effects from production and/or consumption for which no appropriate compensation is paid to one or more third parties affected. Positive production externalities occur when the act of production leads to lower costs to other (third party) agents in the economy. As a result, the marginal social cost is lower thanthe marginal private cost. The external costs are negative.

Positive production externalities are often associated with the benefits that come from increased spending on infrastructure including transport and telecoms networks that help to relieve congestion, speed up logistics operations, lower supply costs for many businesses and also improve the quality of service. So perhaps link this topic to the wider benefits of supply-side policies designed to increase LRAS. A growing number of firms have environmental sustainability as a key objective and are prepared to cooperate on joint research / community projects.

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