Question

Discuss some of the Spillover
costs and spillover benefits to any society and give examples. Related to

Answer 1

Spillover effects are externalities that could be either negative or positive.

Spillover cost: Spillover costs are negative side effects of consumption or production which are faced by the third parties. These are not internalized, hence it results into over production or consumption. For example, a factory located on the bank of the river releases effluents into the river thereby polluting the river and making it unfit for human use.

Spillover cost: These are positive side effects of consumption or production which are enjoyed by third parties. The market system does not account for this, Hence, there under production or consumption of the good. For example, education has strong positive effects on society, Hence, it is an example of the benefits of spillover effects.