Courses : Intermediate Microeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Economic Impacts That Are Not Included In Market Prices In economics, economic effects that are not included in market prices are called externalities. Externalities occur when the activities of one party affect the welfare of another party, but are not reflected in market prices. Examples are environmental pollution, noise, and traffic jams. The negative effects of externalities can cause social costs that are greater than private costs, because social costs include costs that are not borne by producers or consumers but are borne by society as a whole. For example, polluting factory production can cause health and environmental problems for the surrounding community. In this case, the government can use various policies, such as environmental regulations and taxes, to reduce the negative impact of externalities. Governments can also provide incentives to companies to use more environmentally friendly technologies, and promote environmental awareness in society. On the other hand, positive externalities can also occur, namely when one party's activities increase the welfare of another party, but are not reflected in market prices. An example is investment in education, which can increase the productivity and skills of the workforce and benefit society as a whole. However, in some cases, producers or consumers will not take into account the social benefits of the investment, so the government may promote investment in education through policies such as education subsidies or tax incentives. Economic impacts that are not included in market prices can be referred to as externalities. Externalities occur when the economic activities of a person or company affect the welfare of another person or company without going through the market. An example of a negative externality is industrial pollution which damages health and the environment, while an example of a positive externality is education which benefits society and promotes economic growth. In these circumstances, the market fails to reflect the costs or benefits of the externality, resulting in an imbalance between the quantity desired and the quantity produced in the market. This can lead to over-use of resources on activities that generate negative externalities and under-use of resources on activities that generate positive externalities. Therefore, the government can improve the market by incorporating the costs or benefits of externalities into market prices through taxes and subsidies. Taxes can be imposed on activities that generate negative externalities to account for externality costs, while subsidies can be given to activities that generate positive externalities to encourage the use of resources for these activities. Another effort that can be done is to use environmental regulations and standards to reduce the impact of negative externalities and encourage the use of environmentally friendly technologies. Governments can also take steps to promote activities that generate positive externalities, such as providing tax incentives or grants to educational institutions and hospitals that provide benefits to society. Economic impacts that are not included in market prices can have significant consequences for society and the environment. Some examples of these economic impacts include: 1. Environmental impact: Market prices do not consider the environmental impact of the production and consumption of goods and services. For example, the use of fossil fuels causes greenhouse gas emissions which have an impact on global climate change. However, consumers and producers often do not pay for these impacts through fixed market prices. 2. Health impact: Consumption of certain goods can have a significant health impact on consumers, for example cigarette smoke. Health care costs and lost productivity due to poor health are often not included in the market price of cigarettes. 3. Social impact: The production and consumption of goods and services can have significant social impacts on society, for example when workers in factories suffer injuries or when alcohol consumption causes road accidents. These costs are often not included in the market price of the goods and services produced. 4. Global economic impact: Market prices of goods and services can be affected by global economic factors, such as currency fluctuations and differences in wage rates in different countries. This can have an impact on the economic conditions and welfare of people in different countries. Therefore, efforts are needed to account for economic impacts that are not included in market prices, through regulations or appropriate economic incentives. This can help promote more sustainable production and consumption and help society and the environment to reduce adverse economic impacts.