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Negative Externalities

Negative Externalities. Where the Free Market Needs Help. EXTERNALITIES. An externality is the uncompensated impact of one person’s actions on another person. This is not efficient. Efficiency requires:. All costs of production must be counted by producers

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Negative Externalities

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  1. Negative Externalities Where the Free Market Needs Help

  2. EXTERNALITIES • An externalityis the uncompensated impact of one person’s actions on another person

  3. This is not efficient Efficiency requires: • All costs of production must be counted by producers • If pollution is “not counted” => societybears the costs of production

  4. Negative Externalities • Automobile exhaust • Cigarette smoking • Barking dogs (loud pets) • Loud stereos in an apartment building • Noisy Students • Neighbor’s poorly maintained property • Pollution

  5. Positive Externalities • Restored historic buildings • Research into new technologies • Neighbor’s well maintained property Youtube video—cool examples

  6. MARKET INEFFICIENCY • Negative externalities lead markets to overproduce S2 Market price should be here Quantity demanded/ supplied at the true price should be here

  7. Specific Examples: Lake Erie Before After Regulation/Clean Up Efforts

  8. Acid Rain

  9. Global Warming

  10. Solutions to Pollution IncreaseGovernmentRegulation a) Tax the pollutant b) Fine corporations/individuals who pollute c) Provide incentive to not pollute carbon, etc. oil

  11. Creating an Incentive to Not Pollute: Cap & Trade System • Gov’t can create a system of tradingpollution credits [Read Article if time]

  12. Global Pollution Standards • Questions to consider: • Who is in charge of pollutionstandards? • 2. Should countries all have the same pollution/ • environmental standards?

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