The topic of this discussion is on Externalities. Specifically answer this promp

Question

The topic of this discussion is on Externalities. Specifically answer this prompt: Have you ever experienced a negative or positive externality? Specifically identify the "consumers" and the "producers" in the market, and how you were affected by that market. Specifically explain what the positive or negative externality is, and if possible give a dollar value of that positive or negative externality.

In the response: please post possible corrections to the externalities posed by students. Use either government regulation or the Coase Theorem in your response and be specific on the type of regulation (e.g. taxes, subsidies, command & control).

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open gravel truck beds on the freeway. On the freeway I often drive by large semi-trucks carrying gravel in open beds. Sometimes large pebbles or small rocks will fly out of the open bed and strike and dent my car or could crack my window. The market here is between the gravel producers (and transporters) and those who will purchase the gravel. These pebbles act as a negative externality in the market for gravel, specifically in the form of damage to my car and to other peoples' vehicles who do not participate at all in this gravel market.

Explanation / Answer

A negative externality is an economic activity that imposes a negative effect on an unrelated third party. It can arise either during the production or the consumption of a good or service. Pollution is termed an externality because it imposes costs on people who are "external" to the producer and consumer of the polluting product.

A positive externality is the positive effect an activity imposes on an unrelated third party. Similar to a negative externality, it can arise either on the production side, or on the consumption side.

To overcome externalities, we require some form of government intervention

Tax:-To reduce consumption of negative externalities, we can place a tax on goods with negative externalities

Subsidy: - To increase consumption of positive externalities, we can place a subsidy on these goods.

Regulation: - The government may place regulations which limit the amount of pollution.

Nudges and behavioural economics: - The government could place incentives and make it easier to choose less costly environmental choices.

Example of Negative Externality:-

Water pollution by industries that adds effluent, which harms plants, animals, and humans. Water usage from growing plants could impose a negative externality on citizens of counties or states who are harmed by decreased water. In this example the industry who are producing goods are the producer and the person consuming the product are consumers. And the plants, animals, and humans are the third party which get effected by this externality. And government can overcome this by imposing taxes and penalty to these producer.

Example of Positive Externality:-

An industrial company providing first aid classes for employees to increase on the job safety. This may also save lives outside the factory. Under this case government can provide subsidy to the industry for expensing these type of expenses. Here Industry is a Producer and the people who consuming it are the consumer. And The public and employee benefited from these first aid are third party.

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