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Government can discourage negative externalities by taxing goods and services that generate spillover costs. Government can encourage positive externalities by subsidizing goods and services that generate spillover benefits.
Property rights provide incentives for the owners of resources to weigh the value of present uses against the value of conserving the resources for future use.
Property Rights Are a Bargaining Chip An externality can occur whenever an economic activity, or planned activity, imposes a cost or benefit on another party. It is called a positive externality if the activity imposes a net benefit and a negative externality if it imposes a net cost.
Negative externalities are corrected by taxes, while positive externalities are corrected by subsidies. A classic example of a negative externality is pollution. A classic example of a positive externality is the benefits of education.
Housing externalities refer to the effects the characteris tics of a house have on other residents and, potentially, businesses. In economics, the term externality refers to the effects that an economic transaction has on parties not directly involved in the transaction.