Entropy

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Jump to: navigation, search This article is about entropy in thermodynamics. For entropy in information theory, see Entropy (information theory). For a comparison of entropy in information theory with entropy in thermodynamics, see Entropy in thermodynamics and information theory. For other uses, see Entropy (disambiguation). For a generally accessible and less technical introduction to the topic, see Introduction to entropy.

Ice melting in a warm room is a common example of increasing entropy,[note 1] described in 1862 by Rudolf Clausius as an increase in the disgregation of the molecules of ice.[1]
Entropy articles Introduction History Classical Statistical

Entropy is a thermodynamic property that can be used to determine the energy available for useful work in a thermodynamic process, such as in energy conversion devices, engines, or machines. Such devices can only be driven by convertible energy, and have a theoretical maximum efficiency when converting energy to work. During this work, entropy accumulates in the system, which then dissipates in the form of waste heat.

In classical thermodynamics, the concept of entropy is defined phenomenologically by the second law of thermodynamics, which states that the entropy of an isolated system always increases or remains constant. Thus, entropy is also a measure of the tendency of a process, such as a chemical reaction, to be entropically favored, or to proceed in a particular direction. It determines that thermal energy always flows spontaneously from regions of higher temperature to regions of lower temperature, in the form of heat. These processes reduce the state of order of the initial systems, and therefore entropy is an expression of disorder or randomness. This picture is the basis of the modern microscopic interpretation of entropy in statistical mechanics, where entropy is defined as the amount of additional information needed to specify the exact physical state of a system, given its thermodynamic specification. The second law is then a consequence of this definition and the fundamental postulate of statistical mechanics. Thermodynamic entropy has the dimension of energy divided by temperature, and a unit of joules per kelvin (J/K) in the International System of Units. The term entropy was coined in 1865 by Rudolf Clausius based on the Greek [entropa], a turning toward, from - [en-] (in) and [trop] (turn, conversion).[2][note 2]

Contents
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1 Thermodynamical and statistical descriptions 2 The second law of thermodynamics 3 Definitions and descriptions o 3.1 Carnot cycle o 3.2 Statistical thermodynamics o 3.3 Classical thermodynamics 4 History 5 Consequences and applications o 5.1 The arrow of time o 5.2 The fundamental thermodynamic relation o 5.3 Entropy in chemical thermodynamics o 5.4 Entropy change o 5.5 Entropy balance equation for open systems o 5.6 Entropy in quantum mechanics (von Neumann entropy) 6 Approaches to understanding entropy o 6.1 Order and disorder o 6.2 Energy dispersal o 6.3 Relating entropy to energy usefulness o 6.4 Ice melting example o 6.5 Entropy and adiabatic accessibility o 6.6 Standard textbook definitions 7 Interdisciplinary applications of entropy o 7.1 Thermodynamic and statistical mechanics concepts o 7.2 Entropy and life o 7.3 Cosmology o 7.4 Information theory

7.5 Mathematics 7.6 Sociology 8 See also 9 Notes 10 References 11 Further reading 12 External links

o o

Thermodynamical and statistical descriptions

Any method involving the notion of entropy, the very existence of which depends on the second law of thermodynamics, will doubtless seem to many farfetched, and may repel beginners as obscure and difficult of comprehension.

Willard Gibbs, Graphical Methods in the Thermodynamics of Fluids (1873)[3]

There are two related definitions of entropy: the thermodynamic definition and the statistical mechanics definition. The thermodynamic definition was developed in the early 1850s by Rudolf Clausius and essentially describes how to measure the entropy of an isolated system in thermodynamic equilibrium. Importantly, it makes no reference to the microscopic nature of matter. The statistical definition was developed by Ludwig Boltzmann in the 1870s by analyzing the statistical behavior of the microscopic components of the system. Boltzmann showed that this definition of entropy was equivalent to the thermodynamic entropy to within a constant number which has since been known as Boltzmann's constant. In summary, the thermodynamic definition of entropy provides the experimental definition of entropy, while the statistical definition of entropy extends the concept, providing an explanation and a deeper understanding of its nature. Thermodynamic entropy is a non-conserved state function that is of great importance in the sciences of physics and chemistry.[4][5] Historically, the concept of entropy evolved in order to explain why some processes (permitted by conservation laws) occur spontaneously while their time reversals (also permitted by conservation laws) do not; systems tend to progress in the direction of increasing entropy.[6][7] For isolated systems, entropy never decreases.[5] This fact has several important consequences in science: first, it prohibits "perpetual motion"

machines; and second, it implies the arrow of entropy has the same directionality as the arrow of time. Increases in entropy correspond to irreversible changes in a system, because some energy is expended as waste heat, limiting the amount of work a system can do.[4][8][8][9][10][11] In statistical mechanics, entropy is a measure of the number of ways in which a system may be arranged, often taken to be a measure of "disorder" (the higher the entropy, the higher the disorder).[4][9][10][12][13][14][15] This definition describes the entropy as being proportional to the logarithm of the number of possible microscopic configurations of the individual atoms and molecules of the system (microstates) which could give rise to the observed macroscopic state (macrostate) of the system. The constant of proportionality is the Boltzmann constant.

The second law of thermodynamics

Main article: Second law of thermodynamics The second law of thermodynamics states that in general the total entropy of any system will not decrease other than by increasing the entropy of some other system. Hence, in a system isolated from its environment, the entropy of that system will tend not to decrease. It follows that heat will not flow from a colder body to a hotter body without the application of work (the imposition of order) to the colder body. Secondly, it is impossible for any device operating on a cycle to produce net work from a single temperature reservoir; the production of net work requires flow of heat from a hotter reservoir to a colder reservoir. As a result, there is no possibility of a perpetual motion system. It follows that a reduction in the increase of entropy in a specified process, such as a chemical reaction, means that it is energetically more efficient. It follows from the second law of thermodynamics that the entropy of a system that is not isolated may decrease. An air conditioner, for example, may cool the air in a room, thus reducing the entropy of the air of that system. The heat expelled from the room (the system), which the air conditioner transports and discharges to the outside air, will always make a bigger contribution to the entropy of the environment than will the decrease of the entropy of the air of that system. Thus, the total of entropy of the room plus the entropy of the environment increases, in agreement with the second law of thermodynamics. In mechanics, the second law in conjunction with the fundamental thermodynamic relation places limits on a system's ability to do useful work.[16] The entropy change of a system at temperature T absorbing an infinitesimal amount of heat q in a reversible way, is given by . More explicitly, an energy TRS is not available to do useful work, where TR is the temperature of the coldest accessible reservoir or heat sink external to the system. For further discussion, see Exergy. Statistical mechanics demonstrates that entropy is governed by probability, thus allowing for a decrease in disorder even in a closed system. Although this is possible, such an event has a small probability of occurring, making it unlikely. Even if such an event were to occur, it would result in a transient decrease that would affect only a limited number of particles in the system

The Entropy Law

(The current state and the future of the world.)
In Physics, there are two laws, which deserve to be ranked as the supreme law. These are the first and the second law of Thermodynamics. Albert Einstein, worlds most eminent scientist, made the following observation about these laws:

"The more impressive a Theory, the greater is the simplicity of its premises, the more different are the kinds of things it relates and the more extended its range of applicability."

As stated in the above observation, the laws of Thermodynamics have a very wide range of applicability. These can be applied to Cosmology, History, Economics, Development of Institutions, Military, Nuclear fission and to almost everything. It would therefore, be of great advantage to know briefly what these laws are and how these explain the present state of the world and what they predict about the future.

The first and the second laws of thermodynamics:

The first law of Thermodynamics is the "law of conservation". It says that energy can never be created or destroyed; it can only be transformed from one form to another form. For example, when we use petrol or gasoline in the engine of our car, most part of it gets transformed into work, some of it changes into heat and some part goes out as exhaust products.

Now, in relation to this first law, it is very important to consider two things. One is that the shape, texture and movement of everything is made up of energy. Not only gasoline, coal or kerosene oil is made up of energy but rather human body, an automobile and a candle also are embodiments of various concentrations and transformations of energy. When a candle or a car is made, it is made of energy that has been gathered from somewhere else. It has not been created but transformed.

The second important thing to be considered in this connection is that, when the candle is burnt, its energy does not get destroyed but is transformed from one state into another so that the total content of energy in the universe remains constant. So, it is rightly said that "there is nothing new under the sun."

The second law of thermodynamics says that every time energy is transformed from one state to another, there is a loss in the amount of that form of energy, which becomes available to perform work of some kind. The loss in the amount of available energy is known as entropy. For example, if we burn a piece of coal, even then the total amount of energy remains the same but, due to the process of burning, some part of coal is transformed into sulphur-dioxide and other gases which go out and spread into space. Now, this part of the coal which has been transformed into sulfur dioxide and exhausts cannot be reborn to get the same work out of it. This kind of loss, wastage or penalty, is called 'Entropy'. The second law of Thermodynamics explains that the total entropy in the world is constantly increasing. An entropy increase, therefore, means a decrease in available energy. Further, not only does available energy decrease every time something occurs in this world but the unavailable energy-form works as pollution. Thus, according to the second law of Thermodynamics, the world is moving towards a dissipated state

and the pollution in the world is constantly increasing. Furthermore, "entropy", (i.e. the unavailable energy or pollution) in the world always tends towards a "maximum" says the German physicist, Rudolf Claussius (who first coined the term entropy)- Rudolf Claussius further says that, in a closed system, energy moves from a higher level of concentration to a lower level as heat always flows from a hot to a cold body so that, we find that, ultimately, they have reached a stage where there is no longer any difference in energy level. This is known as the equilibrium state. This is the state where entropy has reached the maximum. i.e. where no longer free energy is available for work. For example, when water going over a dam falls into a river, its energy can be used to generate electricity, but, once it reaches the river level, it has no free or available energy. Its energy is now bound energy and it is now in the state of equilibrium. Now the important fact that needs be pointed out in this context is that the earth is a closed system in relation to the universe; in other words, it exchanges energy but not matter with its surroundings. And the universe itself also is a closed system in the sense that it does not have any flow of energy from any other universe. The amount of energy in the universe has been fixed since the beginning of time and will remain fixed till the end of time. Such being the case, the two laws of thermodynamics mean, in their final analysis, that the fixed endowment of terrestrial matter that makes up the earth and the mountains is continually dissipating and what appear renewable sources are really non-renewable sources ultimately. In Sir James Jeans words, "The universe is like a clock which is running down", which so far as science knows, no one ever winds up. It is at present a partially wound up clock, which must at some time in the past have been wound up in some manner unknown to us. So, the universe is like a clock, running down, whose entropy is increasing continually. Even a farmer understands that, even with constant sunshine, it is impossible to grow the same amount of grass on the same spot year after year till eternity.

Now, these facts of science, based on law of Thermodynamics, are well established. In the past, there have been many attempts by well-known scientists to challenge these laws but their attempts ended up in strengthening the position of the second law.

Another aspect of Entropy Law: (from ordered to disordered state):

Besides the energy moving from available to unavailable states and from high concentration to low concentration, there is another aspect of the second law of Thermodynamics. Entropy Law states that all energy, in an isolated system, moves from an ordered to a disordered state. The state in which energy-concentration is highest and available energy is maximum, i.e. where entropy is minimum, is also the most ordered state. In Indian scriptures, that state is called Satogun. In contrast to this, the maximum entropy state, where available energy has been highly dissipated state, in Indian scriptures, it is known as Tamogun state.

The above is in accordance with our everyday experience of the world around us. As things are let on their own, they do tend to spontaneously move to more and more dis-ordered states. If we leave our office unattended for a period, it becomes more and more dis-orderly. Another aspect of the law is that whenever we make an attempt to reverse the entropy increase, it is only done by increasing the overall entropy of the surrounding environment. The scientists Angsist and Hepler say: "each local, man-made or machine-made entropy-decrease is accompanied by a greater increase in entropy of the surroundings, thereby maintaining the required increase in total entropy. Now, this has very great implication for the society. In practical terms, it means that the society

deteriorates and becomes disorganised gradually. There is degeneration in its moral force, its spiritual stamina, the vigor of its character, the effectiveness of its character, the effectiveness of its religion and the sense of law and order. In Hindu scriptures, it has, therefore, been said that the moral and spiritual energy of the society goes on degenerating so that, ultimately, it reaches a stage of maximum entropy when God has to intervene to reverse the entropy and to bring about Satyuga or Golden Age when all material things have maximum energy-concentration, i.e. are Sato-pradhan and the souls also have maximum available moral and spiritual energy.

It would be of interest to the readers to know that the Greeks also considered history as a process of continual degradation. The Greek historian-Hesiod, has described these five ages as the Golden, Silver, Brass, iron and Heroic Age. The Greeks believed that each of the succeeding Age was more degraded. The Golden Age was the highest. It was a period of affluence and peace. The Belief was: "In the beginning, there was a golden race of immortal men, who lived like gods, with hearts free from care, without labour and sorrow. Pitiful old age did not await them. When they died, it was as though they were overcome by sleep. All good things were theirs and the grain harvest was yielded by the bountiful earth of her own accord--abundantly and ungrudgingly while they lived in peace and goodwill upon their lands. The following is what has been said about the Iron Age: "For now, in these latter days is the Race of Iron. Never by days shall they rest from travail and sorrow, and never by night from the web of the vices. The father shall not be of one mind with the children, nor the children with the father, nor the guest with the host that receives them, nor friends with friends. Parents shall swiftly age and swiftly be dishonoured. The righteous man or the good man or he that keeps his oath shall not find favour, but they shall rather honour the doer of wrong and the right shall rest in might of hand--and truth shall be no more." The Greeks believed not only in inevitable process of decay during the each subsequent age of history but, they also believed that, finally the universe would approach chaos and then God would intervene once again and restore the original conditions of moral and material perfection, so that the process would then begin once again. Thus, they did not believe in the evolution of man from the state of chaos or disorder to a state of civilisation and development but from a state of perfection to a state of moral degeneration and also in repetition of the world cycle.

Similarly, the Romans also originally believed in a process of continual degradation. In Roman mythology, it is said: "Time depreciates the value of the world." The Christian view of history is also almost the same. Though they abandoned the Greek concept of cycles--they believe that, originally, God created man in His own image and sin entered into the world later.

Entropy Law and Evolution:

The second law of Thermodynamics, as explained here-above, points out, that "The universe is like a clock which is running down." But, the evolutionists say that the world has been building up from simpler to more complex forms over billions of years. Evidently, this view of the evolutionists is contrary to the well-established second law of thermodynamics. For, in actual practice, we observe that the changes in the physical unvierse are caused by running down and not by building up. For example, complex atoms, like those of uranium and thorium disintergarate into less complex ones like radium or lead, but it has never been in the reverse order. The complex stars also break down into nebulae and this happens in a few hours time, as observed at present: it does not happen in millions of years. Similarly, the sun burns about 250 million tons of matter per

minute. Such a huge process of annihilation must have been going on in the stars also, Evidently, it is not a process of building up of energy or of evolution of more complex forms but it is a process of dissipation and disintergration into simple forms. The theory of evolution, being contradictory to this well-established law, is erroneous. Sullivan says, in his book Limitation of Science: "One of the least disputable laws of Physical Science states that the universe is steadily running down. We live in a wasting universe. But the fact that the energy of the universe will be more disorganised tomorrow than it is today implies, of course, that the energy of the universe was more highly organised yesterday than it is today. Following the process backward, we find a more and more highly organised universe. This backward tracing of time cannot be continued indefinitely. Organisation cannot, as it were, mount up and up without limit. There is a definite maximum, which must have been in existence a finite time ago. And it is impossible that this state of perfect organisation could have been evolved from some less perfect state. Nor is it possible that the universe could have persisted from eternity in that state of perfect organisation. Thus the accepted laws of nature lead us to a definite beginning of the universe in time."

LAWS OF THERMODYNAMICS
Table of Contents Laws of Thermodynamics | Potential vs. Kinetic energy | Learning Objectives

Links

Laws of Thermodynamics | Back to Top

Energy exists in many forms, such as heat, light, chemical energy, and electrical energy. Energy is the ability to bring about change or to do work. Thermodynamics is the study of energy. First Law of Thermodynamics: Energy can be changed from one form to another, but it cannot be created or destroyed. The total amount of energy and matter in the Universe remains constant, merely changing from one form to another. The First Law of Thermodynamics (Conservation) states that energy is always conserved, it cannot be created or destroyed. In essence, energy can be converted from one form into another. Click here for another page (developed by Dr. John Pratte, Clayton State Univ., GA) covering thermodynamics. The Second Law of Thermodynamics states that "in all energy exchanges, if no energy enters or leaves the system, the potential energy of the state will always be less than that of the initial state." This is also commonly referred to as entropy. A watchspring-driven watch will run until the potential energy in the spring is converted, and not again until energy is reapplied to the spring to rewind it. A car that has run out of gas will not run again until you walk 10 miles to a gas station and refuel the car. Once the potential energy locked in carbohydrates is converted into kinetic energy (energy in use or motion), the organism will get no more until

energy is input again. In the process of energy transfer, some energy will dissipate as heat. Entropy is a measure of disorder: cells are NOT disordered and so have low entropy. The flow of energy maintains order and life. Entropy wins when organisms cease to take in energy and die.

Potential vs. Kinetic energy | Back to Top

Potential energy, as the name implies, is energy that has not yet been used, thus the term potential. Kinetic energy is energy in use (or motion). A tank of gasoline has a certain potential energy that is converted into kinetic energy by the engine. When the potential is used up, you're outta gas! Batteries, when new or recharged, have a certain potential. When placed into a tape recorder and played at loud volume (the only settings for such things), the potential in the batteries is transformed into kinetic energy to drive the speakers. When the potential energy is all used up, the batteries are dead. In the case of rechargeable batteries, their potential is reelevated or restored. In the hydrologic cycle, the sun is the ultimate source of energy, evaporating water (in a fashion raising it's potential above water in the ocean). When the water falls as rain (or snow) it begins to run downhill toward sea-level. As the water get closer to sea-level, it's potential energy is decreased. Without the sun, the water would eventually still reach sea-level, but never be evaporated to recharge the cycle. Chemicals may also be considered from a potential energy or kinetic energy standpoint. One pound of sugar has a certain potential energy. If that pound of sugar is burned the energy is released all at once. The energy released is kinetic energy (heat). So much is released that organisms would burn up if all the energy was released at once. Organisms must release the energy a little bit at a time. Energy is defined as the ability to do work. Cells convert potential energy, usually in the from of C-C covalent bonds or ATP molecules, into kinetic energy to accomplish cell division, growth, biosynthesis, and active transport, among other things.

Learning Objectives | Back to Top

These learning objectives are taken from my Biology for Nonmajors class (BIO 102). I have tried to add a link to each that will direct you to a part of this chapter or another website that will facilitate your completion of the objective

Externality
From Wikipedia, the free encyclopedia Jump to: navigation, search "External" redirects here. For other uses, see External (disambiguation). This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed.
(September 2007)

It has been suggested that this article or section be merged with Internality. (Discuss)
Proposed since December 2010.

In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices,[1] incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost. In these cases in a competitive market, prices do not reflect the full costs or benefits of producing or consuming a product or service. Producers and consumers may either not bear all of the costs or not reap all of the benefits of the economic activity, and too much or too little of the good will be produced or consumed in terms of overall costs and benefits to society. For example, manufacturing that causes air pollution imposes costs on the whole society, while fire-proofing a home improves the fire safety of neighbors. If there exist external costs such as pollution, the good will be overproduced by a competitive market, as the producer does not take into account the external costs when producing the good. If there are external benefits, such as in areas of education or public safety, too little of the good would be produced by private markets as producers and buyers do not take into account the external benefits to others. Here, overall cost and benefit to society is defined as the sum of the economic benefits and costs for all parties involved.[2][3]

External costs and benefits

Contents

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1 Implications 2 Examples o 2.1 Negative o 2.2 Positive o 2.3 Positional 3 Supply and demand diagram o 3.1 External costs o 3.2 External benefits 4 Possible solutions 5 See also 6 Notes 7 References 8 External links

[edit] Implications
Standard economic theory states that any voluntary exchange is mutually beneficial to both parties involved in the trade. This is because either the buyer or the seller will refuse the trade, if it doesn't benefit both. However, an exchange can cause additional effects on third parties. From the perspective of those affected, these effects may be negative (pollution from a factory), or positive (honey bees kept for honey that also pollinate crops). Welfare economics has shown that the existence of externalities results in outcomes that are not socially optimal. Those who suffer from external costs do so involuntarily, while those who enjoy external benefits do so at no cost. A voluntary exchange may reduce societal welfare if external costs exist. The person who is affected by the negative externalities in the case of air pollution will see it as lowered utility: either subjective displeasure or potentially explicit costs, such as higher medical expenses. The externality may even be seen as a trespass on their lungs, violating their property rights. Thus, an external cost may pose an ethical or political problem. Alternatively, it might be seen as a case of poorly defined property rights, as with, for example, pollution of bodies of water that may belong to no-one (either figuratively, in the case of publicly-owned, or literally, in some countries and/or legal traditions). On the other hand, a positive externality would increase the utility of third parties at no cost to them. Since collective societal welfare is improved, but the providers have no way of monetizing the benefit, less of the good will be produced than would be optimal for society as a whole. Goods with positive externalities include education (believed to increase societal productivity and well-being; but controversial, as these benefits may be internalized), public health initiatives (which may reduce the health risks and costs for third parties for such things as transmittable diseases) and law enforcement. Positive externalities are often associated with the free rider problem. For example, individuals who are vaccinated reduce the risk of contracting the relevant disease for all others around them, and at high levels of vaccination, society may receive large health and welfare benefits; but any one individual can refuse vaccination, still avoiding the disease by "free riding" on the costs borne by others.

There are a number of potential means of improving overall social utility when externalities are involved. The market-driven approach to correcting externalities is to "internalize" third party costs and benefits, for example, by requiring a polluter to repair any damage caused. But, in many cases internalizing costs or benefits is not feasible, especially if the true monetary values cannot be determined. . Laissez-faire economists such as Friedrich Hayek and Milton Friedman sometimes refer to externalities as "neighborhood effects" or "spillovers", although externalities are not necessarily minor or localized. Private and social costs: Social costs are the spillover costs to society (society pays off the costs), while private costs are the costs given to the individual firms or producer.

[edit] Examples
[edit] Negative

A negative externality is an action of a product on consumers that imposes a negative side effect on a third party; it is "social cost". Many negative externalities (also called "external costs" or "external diseconomies") are related to the environmental consequences of production and use. The article on environmental economics also addresses externalities and how they may be addressed in the context of environmental issues.

Air pollution from burning fossil fuels causes damages to crops, (historic) buildings and public health. The most extensive and integrated effort to quantify and monetise these impacts was in the European ExternE project series.[4][5] Anthropogenic climate change is attributed to greenhouse gas emissions from burning oil, gas, and coal. The Stern Review on the Economics Of Climate Change says "Climate change presents a unique challenge for economics: it is the greatest example of market failure we have ever seen."[6] Water pollution by industries that adds poisons to the water, which harm plants, animals, and humans. Systemic risk describes the risks to the overall economy arising from the risks which the banking system takes. A condition of moral hazard can occur in the absence of well-designed banking regulation,[7] or in the presence of badly designed regulation.[8] Industrial farm animal production, on the rise in the 20th century, resulted in farms that were easier to run, with fewer and often less-skilled employees, and a greater output of uniform animal products. However, the externalities with these farms include "contributing to the increase in the pool of antibiotic-resistant bacteria because of the overuse of antibiotics; air quality problems; the contamination of rivers, streams, and coastal waters with concentrated animal waste; animal welfare problems, mainly as a result of the extremely close quarters in which the animals are housed."[9][10]

The harvesting by one fishing company in the ocean depletes the stock of available fish for the other companies and overfishing may be the result. The stock fish is an example of a common property resource, and that, in the absence of appropriate environmental governance, is vulnerable to the Tragedy of the commons. When car owners use roads, they impose congestion costs and higher accidents risks on all other users. A business may purposely underfund one part of their business, such as their pension funds, in order to push the costs onto someone else, creating an externality. Here, the "cost" is that of providing minimum social welfare or retirement income; economists more frequently attribute this problem to the category of moral hazards. Consumption by one consumer causes prices to rise and therefore makes other consumers worse off, perhaps by reducing their consumption. These effects are sometimes called "pecuniary externalities" and are distinguished from "real externalities" or "technological externalities". Pecuniary externalities appear to be externalities, but occur within the market mechanism and are not a source of market failure or inefficiency.[11] The consumption of alcohol when it leads to traffic or other accidents that injure or kill others. Shared costs of declining health and vitality caused by smoking and/or alcohol abuse. Here, the "cost" is that of providing minimum social welfare. Economists more frequently attribute this problem to the category of moral hazards, the prospect that a party insulated from risk may behave differently from the way they would if they were fully exposed to the risk. For example, an individual with insurance against automobile theft may be less vigilant about locking his car, because the negative consequences of automobile theft are (partially) borne by the insurance company. The cost of storing nuclear waste from nuclear plants for more than 1,000 years (over 100,000 for some types of nuclear waste) is included in the cost of the electricity the plant produces, in the form of a fee paid to the government and held in the Nuclear Waste Fund. Conversely, the costs of managing the long term risks of disposal of chemicals, which may remain permanently hazardous, is not commonly internalized in prices. The USEPA regulates chemicals for periods ranging from 100 years to a maximum of 10,000 years, without respect to potential long-term hazard. Antibiotic overuse contributes to antimicrobial resistance, reducing the future effectiveness of antibiotics. Individuals do not consider this efficacy cost when making usage decisions, leading to socially sub-optimal antibiotic consumption. Government policies proposed to preserve future antibiotic effectiveness include educational campaigns, regulation, Pigouvian taxes, and patents. There is evidence that crime in a neighborhood increases after the opening of a liquor store.[12] Liquor stores may draw an undesirable class of citizens into the neighborhood to shop and hang out. They may also cause more people in the area to drink; such people may then proceed to commit acts in the neighborhood that they would not normally do, or else these drunk people may become easy targets for the crimes of others. Even if the crimes start out small, they may eventually become much worse if not effectively addressed (broken windows theory). Liquor stores are more likely to be open late into the night than other stores, and may result in increased noise levels which harm property values in the community.

[edit] Positive

Examples of positive externalities (beneficial externality, external benefit, external economy, or Merit goods) include:

A beekeeper keeps the bees for their honey. A side effect or externality associated with his activity is the pollination of surrounding crops by the bees. The value generated by the pollination may be more important than the value of the harvested honey. An individual planting an attractive garden in front of his or her house may provide benefits to others living in the area, and even financial benefits in the form of increased property values for all property owners. A public organization that coordinates the control of an infectious disease preventing others in society from getting sick. An individual buying a product that is interconnected in a network (e.g., a video cellphone) will increase the usefulness of such phones to other people who have a video cellphone. When each new user of a product increases the value of the same product owned by others, the phenomenon is called a network externality or a network effect. Network externalities often have "tipping points" where, suddenly, the product reaches general acceptance and nearuniversal usage. Knowledge spillover of inventions and information - once an invention (or most other forms of practical information) is discovered or made more easily accessible, others benefit by exploiting the invention or information. Patent law is a mechanism to allow the inventor or creator to benefit from a temporary, state-protected monopoly in return for "sharing" the information through publication or other means. Sometimes the better part of a benefit from a good comes from having the option to buy something rather than actually having to buy it. A private fire department that charged only those people whose house fire they responded to, would arguably provide a positive externality to the entire community at the expense of an unlucky few who actually had to pay. Some form of insurance could be a solution in such cases, as long as people can accurately evaluate the benefit they have from the option.
o

The major downside to such a system is that the service provider has no obligation to provide the service. In 2010 in Tennessee, a home caught fire and the fire department refused to put the fire out because the household had failed to pay their fire fee of $75.00. In this instance, House A (Did not pay their fee) and the fire department refused to respond to quell the fire. After the fire spread to the neighbors home, the fire department responded and put House Bs (Paid the fee) fire out. House A eventually burned to the ground and House B incurred some fire damage but was generally still stable structurally etc. If the fee is not purchased, you will not receive the fire service. The optimal solution to this externality would be to instead charge a mandatory tax rather than an optional fee.

The sprinkler systems could eliminate the need for a fire department if it effectively eliminates the fire. California and Pennsylvania, starting Jan. 1, 2011, will be the first two states in the country to require sprinklers in every new home based on the International Code Council (ICC)

mandating the installation of residential fire sprinklers in all new one- and two-family residences, including townhouses in the 2009 International Residential Code (IRC). Other states, however, plan to adopt the residential fire sprinkler mandate but delay its implementation, while other states still oppose it.(www.contractormag.com) This would have the potential to reduce the need of a large fire department in the long run. The argument could be made that the installation of a sprinkler system could pay for itself quickly, instead of having to pay a fire fee each year. Similarly, an opt-in policy of this nature would enable residents to pay the fire protection fee if they desired fire service, otherwise, they would not need to worry about being victimized by a neighbors production of fire damage (cost) to their home.

Some studies find that home ownership creates a positive externality in that homeowners are more likely than renters to become actively involved in the local community.[13] A controlled study on the topic, however, disputes that this effect is causal.[14] Still this is often a justification given for why, in the US, interest paid on a home mortgage is an available deduction from the income tax. Education creates a positive externality because more highly educated people are less likely to engage in violent crime. This makes everyone in the community better off, regardless of their level of education.

As noted, externalities (or proposed solutions to externalities) may also imply political conflicts, rancorous lawsuits, and the like. This may make the problem of externalities too complex for the concept of Pareto optimality to handle. Similarly, if too many positive externalities fall outside the participants in a transaction, there will be too little incentive on parties to participate in activities that lead to the positive externalities. A common solution to providing positive externalities is taxation. A tax requires everyone to pay for a beneficial service, such as police and fire protection, which eliminates the free rider problem. A second way is an Individual mandate, a legal requirement that people purchase a beneficial product, such as insurance. In the United States, the 2010 Patient Protection and Affordable Care Act included a requirement that all citizens purchase health insurance to eliminate the free rider problem.
[edit] Positional

Positional externalities refer to a special type of externality that depends on the relative rankings of actors in a situation. Because every actor is attempting to "one up" other actors, the consequences are unintended and economically inefficient. One example is the phenomenon of "over-education" (referring to post-secondary education) in the North American labour market. In the 1960s, many young middle-class North Americans prepared for their careers by completing a bachelor's degree. However, by the 1990s, many people from the same social milieu were completing master's degrees, hoping to "one up" the other competitors in the job market by signalling their higher quality as potential employees. By the 2000s, some jobs which had previously only demanded bachelor's degrees, such as policy analysis posts, were requiring master's degrees. Some economists argue that this increase in educational requirements was above that which was efficient, and that it was a misuse of the societal and personal resources that go into the completion of these master's degrees.

Another example is the buying of jewelry as a gift for another person, e.g. a spouse. For Husband A to show that he values Wife A more than Husband B values Wife B, Husband A must buy more expensive jewelry than Husband B. As in the first example, the cycle continues to get worse, because every actor positions him or herself in relation to the other actors. This is sometimes called keeping up with the Joneses. One solution to such externalities is regulations imposed by an outside authority. For the first example, the government might pass a law against firms requiring master's degrees unless the job actually required these advanced skills.

[edit] Supply and demand diagram

The usual economic analysis of externalities can be illustrated using a standard supply and demand diagram if the externality can be valued in terms of money. An extra supply or demand curve is added, as in the diagrams below. One of the curves is the private cost that consumers pay as individuals for additional quantities of the good, which in competitive markets, is the marginal private cost. The other curve is the true cost that society as a whole pays for production and consumption of increased production the good, or the marginal social cost. Similarly there might be two curves for the demand or benefit of the good. The social demand curve would reflect the benefit to society as a whole, while the normal demand curve reflects the benefit to consumers as individuals and is reflected as effective demand in the market.
[edit] External costs

The graph below shows the effects of a negative externality. For example, the steel industry is assumed to be selling in a competitive market before pollution-control laws were imposed and enforced (e.g. under laissez-faire). The marginal private cost is less than the marginal social or public cost by the amount of the external cost, i.e., the cost of air pollution and water pollution. This is represented by the vertical distance between the two supply curves. It is assumed that there are no external benefits, so that social benefit equals individual benefit.

Demand curve with external costs; if social costs are not accounted for price is too low to cover all costs and hence quantity produced is unnecessarily high (because the producers of the good and their customers are essentially underpaying the total, real factors of production.)

If the consumers only take into account their own private cost, they will end up at price Pp and quantity Qp, instead of the more efficient price Ps and quantity Qs. These latter reflect the idea that the marginal social benefit should equal the marginal social cost, that is that production should be increased only as long as the marginal social benefit exceeds the marginal social cost. The result is that a free market is inefficient since at the quantity Qp, the social benefit is less than the social cost, so society as a whole would be better off if the goods between Qp and Qs had not been produced. The problem is that people are buying and consuming too much steel. This discussion implies that negative externalities (such as pollution) is more than merely an ethical problem. The problem is one of the disjuncture between marginal private and social costs that is not solved by the free market. It is a problem of societal communication and coordination to balance costs and benefits. This also implies that pollution is not something solved by competitive markets. Some collective solution is needed, such as a court system to allow parties affected by the pollution to be compensated, government intervention banning or discouraging pollution, or economic incentives such as green taxes.
[edit] External benefits

The graph below shows the effects of a positive or beneficial externality. For example, the industry supplying smallpox vaccinations is assumed to be selling in a competitive market. The marginal private benefit of getting the vaccination is less than the marginal social or public benefit by the amount of the external benefit (for example, society as a whole is increasingly protected from smallpox by each vaccination, including those who refuse to participate). This marginal external benefit of getting a smallpox shot is represented by the vertical distance between the two demand curves. Assume there are no external costs, so that social cost equals individual cost.

Supply curve with external benefits; when the market does not account for additional social benefits of a good both the price for the good and the quantity produced are lower than the market could bear.

If consumers only take into account their own private benefits from getting vaccinations, the market will end up at price Pp and quantity Qp as before, instead of the more efficient price Ps and quantity Qs. These latter again reflect the idea that the marginal social benefit should equal the marginal social cost, i.e., that production should be increased as long as the marginal social benefit exceeds the marginal social cost. The result in an unfettered market is inefficient since at the quantity Qp, the social benefit is greater than the societal cost, so society as a whole would be better off if more goods had been produced. The problem is that people are buying too few vaccinations. The issue of external benefits is related to that of public goods, which are goods where it is difficult if not impossible to exclude people from benefits. The production of a public good has beneficial externalities for all, or almost all, of the public. As with external costs, there is a problem here of societal communication and coordination to balance benefits and costs. This also implies that vaccination is not something solved by competitive markets. The government may have to step in with a collective solution, such as subsidizing or legally requiring vaccine use. If the government