Negative Externalities

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Negative Externalities

• Where the Free Market Needs Help

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EXTERNALITIES

• An externality is the uncompensated impact of one
  persons actions on another person

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Efficiency requires

• All costs of production must be counted by
  producers
• If pollution is not counted gt society bears
  the costs of production

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Negative Externalities

• Automobile exhaust
• Cigarette smoking
• Barking dogs (loud pets)
• Loud stereos in an apartment building
• Noisy Students
• Neighbors poorly maintained property
• Pollution

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Positive Externalities

• Restored historic buildings
• Research into new technologies
• Neighbors well maintained property

Youtube videocool examples
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MARKET INEFFICIENCY

• Negative externalities lead markets to
  overproduce

S2
Market price should be here
Quantity demanded/ supplied at the true price
should be here
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Specific Examples
Lake Erie
Before
After Regulation/Clean Up Efforts
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Acid Rain
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Global Warming
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Solutions to Pollution

• Increase Government Regulation
• a) Tax the pollutant
• b) Fine corporations/individuals who pollute
• c) Provide incentive to not pollute

carbon, etc.
oil
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Creating an Incentive to Not Pollute Cap Trade
System

• Govt can create a system of trading pollution
  credits

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Global Pollution Standards

• Questions to consider
• Who is in charge of pollution standards?
• 2. Should countries all have the same pollution/
• environmental standards?