Midterm Assignment for Managerial Economics Student Name: Quach Khanh Ha
Student Program: Master of Business Administration Student ID: 22117014
Externality is defined as the uncompensated impact of one person’s actions on the well-
being of bystanders. Examples of externality can be the students’ attitude. If one student
asks a good question or makes a good point in class, other students can also gain and
benefit from this new knowledge. This is considered as positive externality as the impact on
the bystanders (other students) is beneficial. However, if one student has a bad behaviour
which creates unnecessary stress to the teacher, this would not only affect the mood of the
teacher but also the quality of the lesson, which would indirectly lower the performance of
this specific class compared to other classes within the school. This is considered as
negative externality as the impact on the bystanders (other students) is adverse. One extra
example of positive externality can be the Kpop industry. As the Kpop wave gains more and
more popularity and profitability, this would not solely benefit the Kpop idols or companies
but would also benefit other industries. It is probable that the Kpop industry attracts more
tourists visiting Korea every year, which leads to following sales in accommodation, food and
beverage, fashion, cosmetics brand and more. Furthermore, Korean people are likely to get
more recognition and respect internationally.
Common resources/goods are defined as goods that are rival in consumption but not
excludable. In other words, if these goods are used by one person it would diminish other
people’s use. However, people cannot be prevented from using common resources/goods.
For example, the games created by Kahoot! At work profile allows free business users to
host games for up to 50 players. This means that you can join the same Kahoot game and
play with others for free if the number of people in the Kahoot room is under 50 (non-
excludable). However, as the number of people in the Kahoot room keeps increasing, it
would reduce the remaining slots for others to be able to join at the same time. Another
example is free social events, such as language exchange, social dance, or board game
events. It is acknowledged that as these events are free and often hosted weekly, there is no
restriction or financial support to hire security guards to stop anyone from joining. Thus,
anyone can join these events (non-excludable), but as the space at the events are usually
limited, people can only be squeezed till a certain point until it is no longer possible for extra
people to access the venue. This example is somewhat like the congested toll road example.
One last example is the park or public benches. These can be perceived as public goods
rather than common resources to some extends, however it can be argued that although it is
free and accessible for anyone (non-excludable). Also, normally a park only has certain
number of park benches (not unlimited) and most importantly, a normal bench can only fit 3-
4 people to sit at the same time (rival in consumption).
Public goods are defined as goods that are neither excludable nor rival in consumption. In
other words, people’s use would not diminish other people’s use as well as people cannot be
prevented from using public goods. Examples can be free downloadable applications on
IOS/Android, which can be used publicly and conveniently anytime anywhere with unlimited
times to download. Another example of a public good is the magic beanstalk in the famous
fairy-tale named "Jack and the Beanstalk". In the story, Jack trades his cow for a handful of
magic beans, which he then plants in the ground. Overnight, a giant beanstalk grows up into
the sky, and Jack climbs it to reach a magical land in the clouds. The beanstalk can be seen
as a public good because it provides benefits to the entire community, rather than just to
Jack. Once the beanstalk is grown, anyone can climb it to access the magical land, and the
use of the beanstalk by one person does not diminish its availability to others. Third
example, also from a fairy tale, is the magical protection spell cast over the kingdom in the
story of Sleeping Beauty. In the story, the fairy godmothers use their magic to cast a spell of
protection over the entire kingdom, ensuring that it remains safe and prosperous. This spell
is a public good because it provides benefits that are non-excludable and non-rivalrous. The
entire kingdom benefits from the protection spell, and its use by one person does not
diminish its availability to others.