ABSTRACT
The economics textbooks now introduce the concepts of external benefits and external costs as sort of a minor postscript to microeconomic analysis. The indication is that where some costs are external to a producer, too many resources are allocated to it by the market for maximum efficiency, and where there are external benefits, more resources should be allocated. The suggestion may be made that taxes and subsidies might be used to internalize the costs and benefits and thus achieve greater allocative efficiency. A common illustration of external costs is pollution by a producer, and a common illustration of external benefits is education (so-called, but really schooling). Here the only quarrel with the usual treatment of externalities is the usual paucity of instances and the treatment of externalities as sort of an addendum to microeconomics rather than as a major qualification of the whole corpus of conclusions usually reached in the main body of microeconomic theory.
