...Micro Economy Externalities Elizabeth Turra Brouwer 11-1175 9/08/201 An Externality is when costs or benefits of certain activities spill or fall into third parties that have nothing to do with the initial situation in hand; its like a side effect or consequence of an activity that affects other parties who did not choose to incur that cost or benefit. Like you can see there can be either costs, or benefits that affect those third parties. When it is a cost that is imposed on third parties, it is called a negative externality; negative externalities occur when a decision or activity imposes costs on anyone that is not involved in the making of the decision, that is if a decision imposes any kind of external cost, which are costs you impose on others, then the social cost will exceed the private cost, which is the cost to the decision maker. On the other hand, when the third party benefits from an activity in which they are not directly involved, the benefit is called positive externality. Negative externalities occur in our every day life; you see, since humans are a very self centered specie we tend to think about the cost something would have on us and very rarely on what it would have on others. Even consumers do not take cost of externalities into account when buying a product that may have a negative externality. So, when a negative externality occurs in an unregulated market, producers don’t take responsibility for external costs, these costs are just...
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...BUSINESS SCHOOL - Undergraduate Assignment Feedback Front sheet SECTION A: |(to be completed by the student) | |Please complete Section A in Block Capitals making sure that you include your Student Number, Module Code and Group Number. FAILURE to| |do so may result in your assignment being delayed. If you are unsure of any of the above please check at the Business School Student | |Centre Reception. | |Student Number (s): |U1320055 | | | | |Programme:(e.g. Business Management) |Business Management | |Module Title: (e.g. Studying for Business) |Public Finance |Seminar Group |00 | |Module Code: |FN6002 |Word Count |1524 | I confirm that no part of this assignment. except where clearly quoted and referenced. has been copied from material belonging to any other person e.g. from a book...
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...Externalities arise when a person or a firm’s actions affect the welfare of others in ways that are not reflected in market prices (spillover effect). In this essay, I will discuss the characteristics of externalities, their control and implications on the free market as well as discussing the ways in which governments can assist to develop and implement policies that can encourage positive externalities. (Lipsey and Chrystal, 2001) (Donohue, et al, 2008:RB2). Externalities could be defined as the costs or benefits that arise from private and public consumption or production. External costs of production occur when a factory emissions cause excessive pollution levels that create breathing difficulties for some members of society. Moreover, external costs of consumption arise when people use their vehicles, affecting others negatively through exhausts emissions. (Lipsey and Chrystal, 2001), (Donohue, et al, 2008:RB2). On the bright side, externalities are not always negative and can often benefit the society; Toyota’s corporate responsibility programs act as examples of this. They train their employees to minimise waste production in the workplace as part of their “Think Green! Program”, there is an inherent external benefit to society as they help to reduce environmental impact and there is a potential that such employees will pass their knowledge on to other members of society at a later date, this creates...
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...Explain the role of technological externalities as a cause of differences in urban productivity and growth. Taking a look at the map, one can easily identify the uneven distribution of population and the clustering of economic activities around the world. Such clustering of economic activities happens at both regional and national levels and is more formally known as agglomeration. Empirical evidence (Quigley, 1998) has shown that the increase in the productivity of a city is more than proportionate to the increase in the density of the city, which justifies why firms tend to cluster and concentrate in the same region. Recent work on economic growth views externalities, especially knowledge spillovers, as the ‘engine of growth’ (Romer 1986; Lucas 1988). This essay is going to examine how technological externalities contribute to the agglomeration of firms and thus leads to different productivity. Externalities involve interdependence of utility, production or profit functions. There are two types of externalities: pecuniary externality and technological externality. Pecuniary externality is market interdependent and it affects firms demand and profit by changes in price. Technological, in the contrast, has no involvement with market and it occurs when the well-being of a consumer or output of a firm are directly affected by the action of another agent in the economy. Krugman (1991) firmly believes that the externalities that sometimes lead to emergence of a core-periphery...
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...Negative Externality… Negative Externality… Whenever there are side effects caused by the private action that can have an impact on other people in crucial ways, we have the problem known as, externalities. The problem arises when it’s a negative consumption and/ or production externalities because there is no such market for them e.g.; noise, air or contamination. Due to the competitive markets it can become inefficient when the externalities occur, therefore government play’s a crucial role by making policies in an attempt to correct, the externalities. Externalities are a cost or the benefits arising from the economic transactions that can have an impact on the third party, and they aren’t taken into account by those whom undertake that particular transaction. In market economy externalities generally occurs where ever there is a direct effect of the actions of one person or the firm on the welfare of another person or firm in a way that isn’t transmitted accurately through a market system. There two forms of externalities positive and negative, and negative production externality happens whenever the production of a good develops a cost borne by the person outside the production of that good. Simple example of that could be, air pollution that occurs through the production of oil by the oil refinery, the air around the suburb will get polluted and makes the community living close to oil refinery worse off, by diminished health or effect the ability of seeing...
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...Negative Externality… Negative Externality… Whenever there are side effects caused by the private action that can have an impact on other people in crucial ways, we have the problem known as, externalities. The problem arises when it’s a negative consumption and/ or production externalities because there is no such market for them e.g.; noise, air or contamination. Due to the competitive markets it can become inefficient when the externalities occur, therefore government play’s a crucial role by making policies in an attempt to correct, the externalities. Externalities are a cost or the benefits arising from the economic transactions that can have an impact on the third party, and they aren’t taken into account by those whom undertake that particular transaction. In market economy externalities generally occurs where ever there is a direct effect of the actions of one person or the firm on the welfare of another person or firm in a way that isn’t transmitted accurately through a market system. There two forms of externalities positive and negative, and negative production externality happens whenever the production of a good develops a cost borne by the person outside the production of that good. Simple example of that could be, air pollution that occurs through the production of oil by the oil refinery, the air around the suburb will get polluted and makes the community living close to oil refinery worse off, by diminished health or effect the ability of seeing...
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...One of the five market failures in health care are externalities. This is described as the benefit of cost arising from an emerging consumption of decision (The Market: Economics and Health Care, 2014). An externality is defined as any influence within the health care system, it can have a negative or positive effect on individuals. It is determined that markets for healthcare aren’t perfect. An externality affects other people outside of the particular groups involved in a change. A negative externality in healthcare is unsafe because it leads to the requirement for resources. The cost of healthcare services is accepted by other consumers. For example, obesity resulted in the increase of healthcare expenditures, the expenses were accepted...
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...Plastic Bag Externalities Audrey Lee ECO305 January 2, 2014 Positive Externalities The positive externalities of plastic bags include the ability to be recycled into other plastic products, lower transportation costs, helping to prevent contamination of hazards. Plastic bags have affected the economy by making the bags cheaper than other bags so they are more readily available. Plastic bags produces 70% less air pollution and 50 times less water pollution than in production than paper bags, and plastic bags require less energy to produce from start to finish; therefore less money is spent on cleaning up the pollution. Plastic bags have greatly helped to reduce the contamination in the health field by allowing healthcare workers to keep contaminated agents from spreading, thus lower the cost of healthcare this is especially helpful in third world countries. Negative Externalities The negative externalities of plastic bags include the following: most plastic bags end up in the landfills, oceans or as litter, all chemicals used to create plastic bags are toxic, plastic bags take 20 to 1000 years to decompose, and kill animals. One of the biggest plastic bag externalities is that plastic bags have a short use life, they are generally used for the short time from the store to home and then discarded. The discarded bags take 20 to 1000 years to decompose but most landfills today are not designed to decompose the products being put into them, so these bags...
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...Negative Externalities Negative externalities occur when the production or consumption imposes costs on third parties. In transport negative externalities can damage the result in an increased amount of carbon dioxide and other pollutants, which damage the environment, create noise pollution, and add to congestion. These create costs. Congestion on the roads costs fuel and time. It also results as a side effect in more pollution. The estimate annual external cost of road congestion in the UK is £18 billion. To prevent road congestion, road are always being improved and new roads are always being built. This however costs the government and therefore the tax payer even more money and therefore an increasing amount of people and therefore cars on the roads have a massive effect on the economy and the population as a whole. More roads being built will also create visual and noise pollution and in the short term could increase the road congestion during the time that the roads are being built due to lower speed limits and also the road works. Negative Externalities caused by transport * Accidents can cause congestion and when roads are congested, cars produce more CO2 as they are waiting in queue with their engines still running. Congestion also costs time and productivity as commuters and other people on business could be late and effect many other people. Also congestion would harm the haulage industry as it may make their deliveries late. * Air pollution is mainly in...
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...Educational Externalities In economics, an externality, or transaction spill over is a cost or benefit that is not transmitted through prices. This spillover to others is called a positive externality in consumption, since people other than the direct consumer of the item find their well-being enhanced by the direct consumer’s use of it. Education is a good example of a positive externality to acquire educational benefits to the individual and to society as a whole. These are the possible positive externalities such as more the following: 1- Rapid economic growth 2- Better functioning democratic processes 3- Improve public safety, hygiene, and greater charitable giving as the average years of education increases. Firstly, the positive externality associate with education is rapid economic growth. From this perspective, education increases not only productivity of the person being educated but also the productivity of his co-works. The highly skilled workforce permits entirely different kinds of technologies to be introduced or to be introduced earlier in a development cycle. Therefore, this expanded education of an individual may indeed affect other workers in the economy. Then, it is obvious that the improved abilities of the best students lead to more rapid invention and development of new technologies. These spillover benefits of education create a justification for government intervention to compensate for generating external benefits. Secondly, the government...
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...n9734007 CORRECTING EXTERNALITIES IN CONSUMPTION Word count: 1160 Introduction This research essay aims to provide an insight and overview of the economic effects of a plastic bag tax. It is important that this issue is addressed because if it is left unaddressed, the consequences could be dire. The essay will discuss the impact that plastic bags are having on society and why the over consumption of such needs to be corrected. Furthermore, it will explain the economic models that are relevant to the issue along with analysing real world examples of similar policies; discussing the limitations and restrictions associated with such models. Setting the Context Australia’s consumption of plastic grocery bags was estimated to be approximately seven billion per year in 2002 (National Plastic Shopping Bags Working Group, 2002), so we can assume it is in excess of this figure currently. This consumption results in negative externalities, not only impacting the environment, but also reducing the efficiency of other sectors of the economy. As these plastic bags are composed of many non-renewable resources such as crude oil, coal and gases, there is an opportunity cost associated with not recycling them. The fuel consumed by driving a car one kilometre is equivalent to the petroleum content of 8.7 bags (Environment Australia, 2002). As these bags are used once, and disregarded, that means that Australia is wasting enough potential fuel to power a car for over...
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... Key Terms: Oligopoly, Government Regulations, Externalities, Profits One could argue that one of the worst feelings in the world is that sinking sensation when you find out that your flight is delayed. Often times, you will see your plane sitting at the gate, so what are they doing out there? Odds are the answer to this question is maintenance. Maintaining a fleet of planes is a huge cost to the airline industry and it’s a cost that the airlines are willing to skip out on if they can in order to maximize profits. The airline industry is an oligopoly. This is to say, there are limited number of firms in a market supplying the same good. In this model, firms are really sensitive to what each other are doing. Each one is trying to get a leg up on the other and if saving a bit of money on maintenance means your firm can keep up with the next airline that lowers its prices, they will do just that. Enter the FAA. The Federal Aviation Administration is a governmental organization designed to monitor and regulate the airline industry, all for the benefits of the taxpayer of course. The FAA wants to hit AMR Corp., the parent company of American airlines, with $162 million dollars in fines for violations concerning maintenance. These fines seem hefty and would lead one to believe that AMR Corp. is putting an unsafe product in the air. The scope of their crimes may not be as bad as it seems. In this case the externality that is consumed by the user would be safety, and in reality...
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...Walt Disney’s Celebration: A Success Story of Internalizing Externalities Introduction Externalities are costs or benefits that are incurred by parties outside of the transaction for a good or service (Caplan, 2008.) In regards to land use planning, externalities arise from the development of land, and these externalities can be positive or negative. For example of a positive externality is when the use of land in a particular property increases the value of the surrounding properties, or a negative externality arises when the particular property is developed resulting in negative change in value to surrounding properties. There are several ways to internalize externalities: The first is the imposition of Pigovian taxes or subsidies equal in value to the externalities; second, the Coasian solution is to clearly define property rights which results in bargaining bringing about the optimal outcome; and third, which is the focus of this paper, the use of land regulation, namely zoning, to plan land development (Caplan, 2008). With respect to Pigovian taxes, given that land supply is relatively inelastic, these will have little effect on the mitigation of negative externalities of, for example, urban sprawl (Caplan, 2012). Further, the Coasian solution to deal with land use externalities involves deal-making between parties which, if there are no transaction costs result in the internalization of externalities. In practice, the Coasian solution is at work in tandem with...
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...most effective solution to the market failures arising from negative externalities [18] Negative externalities occur when production or consumption impose external costs on third parties outside of the market and no compensation is paid. E.g. noise pollution from airlines in London. Taxing business’s for the negative externalities they cause means charging the business’s for the external costs they impose on third parties. One reason why taxation is the most effective solution to the marker failures arising from negative externalities is because by raising the costs of production for the business, they are forced to reduce the supply of their products, so therefore the problem of overproduction is solved. This can be seen in the diagram. The original quantity supplied is shown by the line S. When the tax is imposed, they will have to decrease the quantity they supply shown by the leftward shift if supply curve from S to S3. This means that because the quantity supplied has decreased, it will result in a decrease in negative externalities for third parties, e.g. less noise pollution from aeroplanes because there are less planes. However, if the firm’s products are price inelastic demand, then they will be able to increase the price they charge their consumers so they can maintain their profit margin. Therefore the polluter doesn’t end up paying for the negative externalities, so the externalities won’t have been solved and will be ongoing. This will happen because...
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...amount of congestion and negative externalities associated with it. Congestion occurs when the volume of traffic is greater than the operating capacity of the road and produces negative externalities, which are costs that are suffered by a third party above those felt privately. Where road pricing excels as a solution to congestion, above methods of flat taxation, is in its targeting of users who specifically add to congestion. Whereas other methods are blunt in their blanket approach to car ownership, road pricing specifically targets road usage. Therefore it acts as a true cost of the use drivers make of the road network, often penalising those who can afford it and leaving other options open to those who can’t. Some forms of road user charge are more precise than others, for example the Electronic Road Pricing Scheme in Singapore, which utilises variable pricing based on congestion levels and time of day, to fully apply the cost of congestion to the private motorist. In doing so, it improves awareness of the external cost involved when deciding to travel on a particular stretch of road, as evidenced by Singapore having one of the highest per capita incomes in Asia, but fewer than 30% of Singaporean households owning cars (given that cars are often considered luxury goods and demand should rise in times of prosperity) . The road pricing scheme generates money from car users that can be hypothecated into resolving the negative externalities that are generated by apathy towards...
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