IDs and Paired-Concept Questions

Question

Examlex · Accepted Answer

The Answer is Positive Spillover:
A positive spillover is an economic term that refers to the beneficial effects experienced by a third party or the general public due to an economic transaction or activity between two other parties. These effects are not reflected in the cost of the transaction and are considered external benefits. For example, when a company invests in the education and training of its employees, not only does the company benefit from a more skilled workforce, but the employees' increased knowledge and skills can also positively impact the broader economy and society. This could manifest in various ways, such as through improved productivity, innovation, and even the creation of new industries.

Negative Spillover:
A negative spillover, on the other hand, is the adverse effect that an economic transaction or activity has on a third party who is not directly involved in the transaction. These are also known as external costs or negative externalities. An example of a negative spillover is pollution: a factory may produce goods at a certain cost, but the environmental damage caused by its emissions affects the health and property of people in the surrounding area, which is not accounted for in the price of the goods produced.

Relationship between Positive and Negative Spillover:
The relationship between positive and negative spillovers lies in their nature as externalities, which are effects of economic activities that are not captured in market transactions. Both types of spillovers occur outside of the direct economic exchange and have an impact on third parties. The key difference is that positive spillovers are beneficial and add value to society, while negative spillovers impose costs. Understanding both types of spillovers is crucial for policymakers and businesses, as they often need to find ways to encourage positive spillovers (e.g., through subsidies or tax incentives for activities that generate public benefits) and mitigate negative spillovers (e.g., through regulation or taxes on activities that impose costs on society). Addressing these externalities is essential for achieving a more efficient and equitable allocation of resources in the economy.

IDs and Paired-Concept Questions

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