Negative Externalities

Course: Economics for Business ECON20023

Lecturer: Ms. Welshi Tupou

Prepared by:

• Shahryar Alvi

Table of Contents (Jump to)

Negative Externalities

Implications of negative externalities

Government Intervention

Methods to correct negative Externality

Case Study

Other options and their economic reasons

References.

Negative Externalities

Discussion

Negative Externalities

Externalities whether negative or positive are present within the environment and co-exist simultaneously. Negative externalities take place when the consumption or production causes a harmful or a negative effect to a third party. (Economics.help, n.d.) For instance, like waste, arises from consumption while on the other hand carbon emissions from factories, arise from production. (Anon., n.d.)

As per the economist’s terms, a negative externality is a cost that affects the third partyas a result of an economic transaction. In a transaction, the producer and consumer are the two parties, and third parties may include any individual, organization, property owner, or any resource that is indirectly affected. In a pure economics context, a negative externality is also referred to as anexternal cost. (Anon., n.d.)

Externalities also occur in situations where property rights over assets or resources have not been allocated, or are uncertain and are not predetermined. For example, no one owns the oceans, even the air in which we breathe, they are not the private property of anyone, no ownership and ights have been allocated to them, so ships may pollute the sea without fear of being taken to court, road traffic can pollute the air without being taken into account the harmful effects being emitted for the people breathing the air, leading to prolonged illness (Anon., n.d.)

Implications of negative externalities

If our goods or services or even the environment at large, have negative externalities, then the entire market fails to operate efficiently and effectively. This is because individuals, who incur the costs and their actions impacting others, fail to take into account the costs that they inflict to other people.