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Positive Externalities - How to Take Advantage

In the language of economics, an externality is a benefit or negative effect that goes beyond the buyer and seller of a product or service. Those with benefits are, of course, called positive externalities. For example, when you hire mariachi singers to play at your table in a restaurant, you pay the cost, but the other diners there get the benefit as well. Of course, if the singers play badly, you have created a negative externality, which is generally more common in economic life.

In fact, the classic externalities are all negative. You buy bread, for example, but the pollution created by the baker when making that loaf is a cost that is passed on to other who are not a part of the transaction. Large factories often create great costs in terms of pollution, and these costs affect people who may have no part in either the production or consumer side of the transactions.

A lot of thought needs to be given to how to limit externalities or to internalize these costs - meaning to make those who use a product or service pay the full costs. As important as it is though, that's a discussion for another time. This article is about positive externalities, and how we can take advantage of them to save money and enrich our lives.

Using Positive Externalities

You can benefit for what others have paid for, and do so without it being a form of welfare. The mariachi music above is a good example. The other customer might pay, but it costs them nothing extra for you to enjoy the music as well. In fact, if you know of a restaurant where people often pay for singers (there are many just over the border), you might go there intending to enjoy the music without buying any tunes yourself.

Parks are another way to enjoy a positive externality. If you are not a local resident, you didn't have to pay taxes to create a park, but if it is a public park, you are free to enjoy it. This is a way to save money over paying for recreation.

As you might have guessed, the opportunities for taking advantage of positive externalities are much more common in a wealthier society. In the United States, for example, people are so willing to buy more and more new things, that to make room for them they have to throw away many perfectly usable items. This creates a positive externality for those who don't mind scavenging. Among the things I have personally seen taken from people's refuse, are working television sets, bicycles in good shape, chairs that are still being used fifteen years later, and many, many more things.

A highly acquisitive consumer culture like ours creates many positive externalities in the form of discounts on things that need to be sold into an already overloaded market. We recently bought a beautiful used wooden table that appeared to be almost new, for $20. It would cost about $150 to buy it new, and in other countries where things are not thrown replaced so regularly, it would have sold used for $100.

I once purchased ten pairs of new down mittens at a Walmart for a dollar per pair. They were normally $15, but once again, in a culture that creates so many things to buy, when the season is over and the mittens need to be moved out, they are sold well below the original cost of manufacturing them. I can tell you from experience that in countries where people have less money and less goods are filling the stores, you don;t get these kinds of opportunities.

It is common to get caught up in the culture you live in. In the case of residents of the United States that means buying more than you need , replacing things more often that necessary, and generally spending too much money. But such a culture is an opportunity if you are willing to live a little bit differently. In this country, you can attend free events, buy extremely inexpensive used clothing, buy fruits and vegetables that are on sale below the cost of production, and generally live on very little if you are willing to live differently.

A friend of mine used to go to large outdoor concerts and enjoy the music cost-free from the grass outside the fenced-in area. With no crowds other than the beer-drinking buddies that went with him, I suspect that he enjoyed the concerts almost as much as those inside. Now that's taking advantage of externalities.

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Positive Externalities