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Negative Externalities and the Environment.
Member rating: No Rating | Words: | Submitted: Mon Jun 19 2006
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NEGATIVE EXTERNALITIES AND THE ENVIRONMENT: The market economy is characterised by the prevalence of 'mixed goods' which exhibit public and private good properties and inherently produce externalities or spill-over effects. Negative externalities are defined as the unconsidered marginal external costs of production or consumption unaccounted for by the price mechanism; economic inefficiency and market failure ensue through distorted price signals, and decisions made on the basis of these prices not fully reflecting the value of the resources used. An externality arises when the production or consumption activities of one party enters directly as an argument into the production or utility function of another party. Industrial fumes serve as an example of a negative production-consumption externality; the particular technology used in the production of a private good produces atmospheric pollution as a by-product (i.e. the externality or spill-over) which is involuntarily consumed by third parties such as consumers. If the utility...
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