Internality
In the context of behavioral economics, internality denotes the economic behaviors that lead to individuals accruing certain costs in the long term that they did not consider when making decisions in the present. Internality differs from externality in the sense that externality denotes costs or benefits not transmitted through prices but incurred by a party that was not involved in the transaction of the product influencing the cost or benefit. The behavioral aspect that leads to internality is addiction as it influences individuals into consuming certain products without taking into consideration the adverse effects they accrue from the consumption of those products. The presence of addiction in the consumer behavior of a given consumer limits the ability of the traditional microeconomic individual optimization model to maximize the utility of the consumer in question. This is in the sense that the behavioral aspect of addiction influences that consumer into continually consuming a given product thus preferring it to other sets of goods and services despite the microeconomic benefits that might accrue from the other sets of goods and services. In essence, the behavioral aspect of addiction influences consumers into overlooking the microeconomic disadvantages of the product they are addicted to thus the traditional microeconomic individual optimization model cannot maximize their utility. Smoking and drinking are the major types of consumer behavior that express the existence of the behavioral aspect of addiction. Consequently, the internalities associated with drinking and smoking arise from the social problems associated with these consumer behaviors. These social problems include health complications of lung cancer in the case of smoking and liver cirrhosis in the case of drinking. Poverty is as well another social problem associated with these consumer behaviors of drinking and smoking but particularly with drinking.
Education economics
The human capital theory states that education is a production factor and a specific kind of capital. It suggests that education raises the productivity of an individual by imparting them with vital knowledge and skills and raising their lifetime earnings. In light of this, it proposes that the costly expenditure involved in attaining education ought to be viewed as an investment as individuals incur it with the aim of increasing their lifetime income. In relation to the human capital theory, individuals who attain higher education invest more capital thus raising their productivity as well as their return on investment. The screening theory on the other hand suggests a strategy of combating poor selection in a scenario faced with the complication of asymmetric information. The screening theory proposes a screening model used to determine the ability of an applicant to learn while giving preference to applicants who have a high ability to learn characterized by the attainment of higher education. In relation to the screening theory, individuals with higher educational attainment have higher learning abilities thus they have a higher productivity influencing their higher earnings. In both theories, education plays a crucial role as the major determinant of ones productivity. The human capital theory advocates for educational policies that increase the value of education as a production factor and as a capital. The screening theory on the other hand advocates for educational policies that enhance the capability of education to depict ones learning ability. Consequently, both theories give accurate arguments in regards to the relevance of education in determining productivity and earning. However, the screening theory is widely applied thus making it seem more accurate than the human capital theory.
