Externalities Of Shipping

Externalities of Shipping
Shipping is one of the best examples of generators of externalities. There is a range of externalities
involved in shipping such as water, noise, air, congestion, death and injury. The economics of
maritime safety and environment specialises in studying the relationship between the economic
system and the maritime safety and environment system and the way the two systems interact. Such
a study aims at achieving a balance between the objectives of the two systmems. In order to face
these externalities and reduce them to the minimum, so as they do not affect the environment, is
important to produce such proposals for economic policies for the maritime sector. It is essential
especially for a chairman or a chairwoman of Global Commission on ... Show more content on
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Last but not least, the usage of low–sulphur fuel oil is important. Congestion of ships in ports can be
really harmful since it produces temporary reductions in performance. What can cause a congestion
could be that the port has not been able to invest in cargo handling equipment, or more berths and it
has been left behind by trade expansion. This usually takes place in poor countries. The problem can
be solved easily since most of the new ships are having on their decks their own equipment for the
loading and unloading of the cargo. On older ships that they do not have that advantage, an
installation of cranes can be really useful since in the case of landing in a port which is as it
mentioned before, they will not have to wait for long. So, both the workers at the port and the
shipowner are satisfied. The congestion in ports is creating another externality in the bulk trade
since ships are being loaded to the maximum in order to increase vessel turnaround through the
commercial pressure with vessels encountering really high speed. This causes serious stress issues
which is affecting the vessel. The ship as well as the crew are put into risk while the port benefits
from rapid turnarounds. Nowadays there is no preventing measure, although the regulations for
construction ratified under the second chapter of SOLAS which has to do with the Safety Of Life At
Sea (IMO 1974).
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Negative Externality Pollution Essay
Negative Externality Pollution Negative Externality: Pollution
Pollution has become a heated issue in recent years. The destruction of the environment along with
serious health problems are the eventual effects. The extensive use and availability of automobiles,
tremendous amounts of production in the booming economy and the constant increase in demand for
energy, can be held responsible.
Pollution and its effects can definitely be categorized as negative externalities. Although millions are
inevitably responsible, nobody in their right mind enjoys being subjected to these conditions. Long–
term affects of air pollution include chronic respiratory disease, lung cancer, heart disease, and even
damage to the brain, nerves, ... Show more content on Helpwriting.net ...
By limiting the amount of pollution will diminish the risk of health problems caused by these toxins.
Now many industries have gotten involved with a technique called carbon trading in which those
with high pollution releases buy the rights to pollute from others with low amounts of releases. This
is a controversial approach to reduce pollution because it allows unnecessary amounts of pollution
to be released. If companies chose to sell their rights, what they sell would not have been used in the
first place; now they will be used by companies who can afford to purchase them. It is extremely
expensive to purchase these rights, however some major companies can do so.
In my opinion, all pollution standards should be tightened but over a period of time. I agree totally
that pollution is out of hand at the current time, however it is a problem that has built up for many
years and can't be solved all at once. I feel that it is somewhat unfair to those companies who depend
on their current status. By implementing procedures and regulations that are to occur over a period
of time, it allows many companies to adjust gradually. I also feel that this policy of carbon trading
should be eliminated. Although it does generate income for industries that currently comply, it
allows many others to evade responsibility. I also feel that such things as public transportation and
carpooling should be stressed. It provides an alternative that will drastically

Market Failure
Introduction
A key cause of climate change is the failure of the market system to efficiently allocate resources to
deal with extensive negative externalities, specifically those caused by carbon – based gases
polluting the atmosphere. Failure in the market system is having a extravagant impact on
atmosphere. The allocation of resources is affecting the environment but more specifically the
carbon based gases are polluting the atmosphere. This is resulting in global climate change.
Potential solutions will be analysed throughout this essay to prevent market failure. The solutions
that will be considered are environmental taxation, government regulation and trading in marketable
permits e.g. carbon credit market.
Market Failure ... Show more content on Helpwriting.net ...
Market failure is portrayed through this diagram as the optimum output is higher then the
equilibrium resulting with spillover costs.
Property rights enable the parties to place a price tag on externality through negotiation, creating
opportunities for both sides. The owner of property rights can negotiate with the party causing the
negative externality. The owner will seek compensation for the cost of the externality (Jackson,
Mciver, Bajada 2007:209). This is another issue regarding over allocating resources, as property is a
commonly held resource. The externalities involved with property rights can be good for both sides.
Depending on the negotiation the owner can cause negative externality because they have property
rights and can decide what to do with the property. The party involved will seek compensation for
the externality but this can lead to a reduction in output. So properties are another resource where
market failure can occur.
Environmental taxation
Environmental taxation is when the government taxes items that are effecting the environment to
cover the externality cost. The government taxes mostly on carbon based emissions as they are a
major contributor to the climate change. Automobiles are a major contribution to effecting the
environment. As shown below cars are the highest percentage on impacting the climate.
Producers and consumers of automobiles are not required to compensate

Externalities Of Smoking
are preventable (US Department of Health & Human Services, 2014). Additionally, the health care
costs of smoking amount to $96 billion each year (Barendregt et al., 1997). Yet, this is an
underestimate of the total costs of smoking because of the many externalities associated with
cigarette consumption. Clean–up and secondhand smoke are two common examples of these
externalities. For instance, cigarette butts contain several dangerous chemicals (e.g., nicotine and
ethylphenol) and the butts themselves are non–biodegradable. Furthermore, nonsmokers exposed to
secondhand smoke suffer a 20–30% increase in lung cancer risk (US Department of Health &
Human Services, 2014); reinforcing the need to address both active smoking and passive smoke
exposure

Environmental Externalities In The Canadian Government
The Canadian government ought to take a tougher stand against business enterprises who are
causing negative environmental externalities by levying taxes, intensifying standards and
introducing new environmental programs. Canada wants to be a world leader in climate change and
now is the time to act and set the standard. Revenues generated through taxes will be rolled into
environmental programs and businesses will be forced to innovate to find new ways of doing
business.
Canada has deployed policy options in the past to deal with issues like global warming, hazardous
waste, and air and water pollution, albeit they were after the issues became critical. The government
needs to take a stronger role and be a world leader in climate change, ... Show more content on
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It forces the business to make the decision on how to proceed, and they are faced with consequences
if they continue. 2
Canada currently makes limited use of environmental taxes, in an OECD ranking of
environmentally related taxes as a share of GDP, Canada ranks between Rwanda and Tunisia, and
India. The OECD average was 1.56%, Canada came in at 1.15%, the leading country was Denmark
at 4.11%. This shows that Canada has fallen behind others in environmental taxation and that
changes need to be made.
However, taxes alone will not be able to solve the issue by itself, a multi–pronged approach is
necessary. Taxes are one piece of the puzzle; quality and quantity standards combined with the taxes
will force the business to make tough decisions and force them to innovate and consider clean
technology options. Cap and trade systems may also be used with taxes, allowing business to emit a
certain amount and make market decisions to purchase and emit more; and taxing them on certain
levels. 1
The next negative externality to address is the location of hazardous waste sites and the options to
deal with them. The location of hazardous facilities is a hot–button issue for many communities;
evidence has emerged that communities close to toxic waste landfills suffered serious negative
consequences. 1 The problem with these facilities is they have to go somewhere, so they key is to
locate them where there will have the least impact on people

National Minimum Drinking Age Act Essay
In 1984 the United States Government approved the National Minimum Drinking Age Act that
required that "the States prohibit persons under 21 years of age from purchasing or publicly
possessing alcoholic beverages as a condition of receiving State highway funds." Even though this
bill was nowhere near the magnitude of the prohibition act that was passed less than a century
before it, the act still damaged the relationship between individuals, firms, and the United States
government. Although the intentions of the government were to control alcohol consumption among
citizens aged 18–21, the passing of this act affected the equilibrium already established by a
consumer–producer market, created a market failure and a black market, and introduced excise taxes
into the market. When the National Minimum Drinking Age Act passed, two markets were directly
affected by the outcome and those markets were the producers, the alcohol industry, and the
consumers, US citizens aged 18–21 years old. Leading up to 1984, there was no set minimum age
for purchasing alcohol and so, with the rising concern of drunk driving fatalities, the government
decided to limit the alcohol market. A demerit good is a good that is both over–produced and over–
consumed, and is considered harmful to a person or a society. When the government decided that
alcohol was a demerit good, and raised the minimum age, the market demand for alcohol decreased
as the number of consumers decreased and the quantity

Paul Krugman Microcononomics 16-17
1
Chapter 16 Externalities
Consumers and producers are internal to a transaction. Consumers receive a benefit from the goods
they purchase, while producers pay the costs of production. An externality (sometimes called a
spillover) is a cost or benefit that goes to someone external to a transaction. Pollution is a negative
(cost) externality. Education and research create a positive externality. Externalities can result from
consumption or production.
2
An Example:
Suppose that the costs of raising livestock are mostly borne by the rancher, but there is a spillover
cost. Streams nearby get polluted, and this affects people (and other species) who use the stream as
well as spinach farmers who also use the water for irrigation. ... Show more content on
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6
13
Consider the case of stream pollution by livestock
Suppose the cost of preventing stream pollution is lower than the cost to spinach producers and
other users of the stream. If spinach farmers have the right to clean water, then ranchers will not be
willing to pay spinach farmers enough, and will be forced to prevent the pollution. If ranchers have
the right to pollute the water, then spinach farmers would be willing to pay them enough to prevent
it. Either way, the stream will not be polluted, and this is the most efficient outcome.
14
Suppose that costs are too high
Suppose the cost of preventing stream pollution is higher than the cost to spinach producers and
other users of the stream. If spinach farmers have the right to clean water, then ranchers will be
willing to pay spinach farmers enough to allow pollution of the stream. If ranchers have the right to
pollute the water, then spinach farmers would not be willing to pay them enough to prevent it. Either
way, the stream will be polluted, and this is the most efficient outcome.

7
15
What Can Possibly Go Wrong?
Perhaps nobody owns a clear right to the stream. Sometimes clear rights are impossible to assign. In
some countries it is due to a flawed legal system. The property right may be unenforceable. The
externality may affect those unable to organize or negotiate in their interests. Transaction costs may
be

Difference Between Renewable Resources And Non Energy...
1/ A clear explanation of the difference between renewable resources and non renewable resources
Renewable resources can be used and replaced. Examples are fish stocks, forests, or water. They are
resources that will refilled by itself through reproduction, plantation through the nature cycle. They
are natural resources that technically regenerate itselves through ecological process.
Non renewable resources, such as coal, oil, gold and cooper, are land resources which once used
will never be replaced. Once they are used, the quantity of those kinds of resources would be
reduced. Scarcity may exist in this situation, Scarcity implies that there are unlimited wants in the
world but with limited resources. For resources like coal, mine, gold they are limited resources
which cannot satisfy all human wants. In other words, we want goods but there are not enough
resources to provide us with all the goods want. On the other hand, for renewable resources, it
doesn't mean that it has unlimited quantity. Whereas rapid population growth, maldistribution of
resources can lead to scarcity for human. Since the quantity deployed is faster than the rate of
quantity produced.
(Economics by Alain Anderton P.)
2/ A clear explanation of joint demand and joint supply
A good which is purchased with other goods to satisfy a want is called complement.
When two or more complements are bought together. They are in joint demand. This mean that, in
demanding for one good, a consumer will also be

What Is The Strange Dichotomy
The strange dichotomy is a problem of organizational design where in which one needs to establish
how to change the structure of government in order to allow for the efficient delivery of public
goods. The Second–Generation Theory (SGT) suggests that decentralization occurs in order to
enforce the alignment of perverse incentives. The foundation upon which the Second–Generation
Theory rests, stems from the application of industrial–organization, to the greater public sphere.
There is a trade–off between local accountability and the coordination of policies (Oates, 2005). In
addition, the rational for decentralization of the public sector has no relation to the preference
revelation problem. Instead, in terms of the political sphere there is a political accountability
problem. In order to solve this organizational design issue, one can draw on the theory of Tiebout,
where in which he emphasizes the idea of treating the state as if it were a market. As mentioned
above, this will result in competition amongst jurisdictions as well as enforces a sense of public
mobility, where if the economic agent finds itself dissatisfied with the service received by their
current jurisdiction, they are entitled, under such circumstances, to relocate to another jurisdiction.
In terms of competitive federalism, as outlined by Qian & Weingast ... Show more content on
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The paper provided two solutions that contradict the strange dichotomy. The solutions provide
reasons as to why central government intervention is not required to establish preferences at a local
level. The first solution is a competitive decentralized government as proposed by Oates. The
second solution provides insight into unconditional grants that are made use of to solve preferences
that are not known, ex–ante, once decentralization has occurred in order to align perverse

Externality Of Currency
All throughout history there have been a few different types of currency in America that have been
taken out of the monetary cycle, such as the half cent. The reasons were because the cost of the
currency being produced was higher than the actual face value of the currency. As many historians
say, "history repeats itself" is because it actually has! In 2005 was when the penny finally reached
the cost of one cent in order to produce one penny. In 2011, it costed about 2.4 cents to make one
penny. This was because the price of zinc increased, or the US dollar has gone down in value. The
penny would be considered a negative externality, because the US Mint keeps making the decision
to keep producing them and they do not have to pay the full cost of continuously producing the
penny. This occurs, because the currency being produced comes from the US citizens taxes. Since
the penny is a negative externality, the cost to society is greater than the cost a consumer is actually
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Since US Mint only pays for the marginal private cost of producing the pennies, it will produce
where the marginal private cost is equal to the marginal private benefit. But since there is a negative
externality, the marginal private cost is not the same as the marginal social cost. Since pennies have
become a market failure, government intervention needs to be implemented in order to correct the
market failure quantity to move more towards the social quantity which always has the opportunity
to move the penny market closer to a more efficient solution and reduce deadweight losses. Also, I
believe that the government needs to intervene and completely abolish the production of pennies and
have every product sold for every business round up to the nearest five

A Comparative Study On Information Security Essay
Introduction
Information security is typically over looked and/or ignored but consumers and corporations. In
most cases one side will refuse to correct for the externalities caused by their computing machines.
This changes when an externality ends up causing another great enough externality to the original
producer of the externality. When a study was done determining the willingness for people to pay
for the mitigation of information security both personal and external, the study found that people do
act more in favor of self–interest and are unwilling to correct for the externalities. In a second
comparative study this also ended up being true for corporations as it would cost them more to fund
security, then to simply out play their competitor and ignore the problems. It was also shown that as
consumers/corporations were more affected by security issues other firms would use this against
them allowing for price discrimination.
Analysis
First, taking into account incentives of investing in information security, Anderson and Moore
(2006) looked at actions taken by companies and individuals. What Anderson and Moore found was
that most individuals and companies had no incentive to invest in information security and would
typically pass the liability off to someone else. Anderson and Moore found that (in a study done in
2000 by H. Varian.) many people would not invest in antivirus in the year 2000 since at the time
most viruses were not targeting the individual but, simply

Competition Policy On Two Sided
1 Competition policy on two–sided markets: literature review
On a TSM, an intermediary platform provides services allowing two sides of users to interact with
each other. For example, an online market serves sellers on one side and buyers on the other side.
An integral part of every TSM is externality between two sides: buyers benefit from a greater
number of sellers and products proposed on the platform, sellers benefit from a greater number of
potential buyers who use the platform. The utility obtained by each side depends on the number of
users on the other side and vice versa.
According to Rochet and Tirole (2006),
"a market is two–sided if the net utility on one side increases (decreases) with the number of
members on the other side, ... Show more content on Helpwriting.net ...
The theory of two–sided markets was partially based on and is related to the theory of
intermediation and of multi–product firms. A TSM model is close to the model of a multi–
production: two products are represented by two services – to side 1 and to side 2 – with
interconnected demands. The profit function of a two–sided platform could describe behavior of a
multi–product monopoly, given that both models are characterized by nonzero cross elasticities. But
the mechanisms of demand interdependence are different. In case of two linked products, demand
on one good depends directly on the price of the other complement or substitute good, and this price
interdependence is internalized by one consumer who wants to use both goods. On multisided
markets, demand on one good doesn't depend directly on the price of another good, but on the level
of its consumption.
Positive externalities between two sides imply negative cross–elasticities. The well–known result is
that multi–product monopolist's price in the case of negative price elasticities
(product complementarity) is lower. By analogous reasoning, under two–sided positive externalities
prices on both sides are lower, and the number of consumers on both sides is higher than without
externalities. Price of each side positively depends on the externalities it creates on the one side and

Eco 100 Assignment 1
Principles Of Economics Strayer University ECON 100 March 12th 2012 Suggest how an
economist would approach the problem of alcohol abuse. Provide two (2) possible solutions to this
problem. Include the four (4) elements of the economic way of thinking in your analysis It is a real
case of negative externalities both in consumption and production. production of alcohol causes
pollution too. The two possible solutions suggested by economists are: Coase theorem–They can
negotiate by themselves for compensation without any government intervention if the property
rights are secured and the cost of negotiation is not high. Pigouvian– taxes or regulations. Drunk
driving is included. An economist would increase cost through added ... Show more content on
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How does the alcohol abuse hurt me and what are my costs if I am not the abuser. We will pay for
this in taxes and service. (TerrmPaperWarehouse.com, 2012) Analyze how prescription drugs affect
the demand and supply of other products and services in this country. The rise in costs of
prescription medicines affects all sectors of the health care industry, including private insurers,
public programs, and patients. Spending on prescription drugs continues to be an important health
care concern, particularly in light of rising pharmaceutical costs, the aging population, and increased
use of costly specialty drugs. In recent history, increases in prescription drug costs have outpaced
other categories of health care spending, rising rapidly throughout the latter half of the 1990s and
early 2000s. (Kaiseredu.org, 2012). Formulate a reason why the elasticity of demand is an important
consideration when analyzing the impact of a shift in supply and why the elasticity of supply is an
important consideration when analyzing the impact of a shift in demand. Include at least one (1)
example in each scenario. For example, the tax incidences will change based on both the elasticity
of demand and supply. The consumer has to

Economics
A market failure is when there are not enough resources that are inefficiently allocated due to
imperfections in the market mechanism. When a resource is inefficient it means the resources are
not used in the best distribution by firms or organizations. An ETS is executed when the
environment has been polluted and the government intervenes in order to control the pollution by
providing economic encouragements towards the firms and organizations to reduce the amount of
pollution emitted in the environment (Brown* 2001). When ETS is implemented it reduces the
pollution of the environment caused by different firms thus making it its main goal. The type of
market failure the ETS is addressing is the negative externalities.
An externality is ... Show more content on Helpwriting.net ...
This causes an equal amount of harmful amounts being emitted by the firms.
A fee or tax that is set on the pollution that a firm or source produces is called pollution charge
systems (Pigou 1920). This will cause the charges for marginal cost to increase and supply to
decrease. This will cause the consumer or producer to focus on the externalities thereby improving
the price mechanism of the failure. When the consumers or producers of the goods or services pay
for part of the negative externality that they have caused towards the third party; the private cost
increases thus turning the whole situation into an allocative efficient economy. An example of a
pollution charge is the deposit refund where an individual buys a product that can cause harm to the
environment and gets a refund when the individual has recycled or disposed the product to an
approved center.
A tradable permit is when the firm or organisation avoids the problem by reaching the same cost
minimizing allocation of control burden as a charge system (Crocker 1966). Firms that reach this
target can be able to offset excess emissions in other parts of their facilities or sell their surplus
permits to other firms.
When the government authorities remove existing explicit or implicit barriers to the market activity
is called a market barrier. Barrier reduction, liability rule and information

Advantages And Disadvantages Of Public Goods
INTRODUCTION
PUBLIC GOODS
Public good is an item whose consumption is determined by society not by individual consumers.
Examples include national defense, law enforcement, parks. These goods are financed by taxes
because they are created for the welfare of public. Basically the goods which can be consumed
without reducing its availability to other individual and the other one is not excluded are public
goods. The vice versa of these goods are private goods. A private good is a product that must be
purchased to be consumed and its consumption is done by one individual. For instance, candies: the
person who would be purchasing them , would be having not the person did not purchased.
A public good is an item consumed by society as a whole, for instance defense. This would be for
every citizen for the country, even the person who did not pay the tax. This gives us the one
characteristic of public good that is NON– EXCLUDABLE. These goods are being produced for the
welfare of the whole society rather than focusing on one individual. While ... Show more content on
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But the brewery would be willing to pay the chemical factory to reduce the amount of effluent,
because this will reduce the costs of brewery industry. Such a reduction in effluent may reduce the
chemical industry's profits, as the firm's output of chemicals and the effluents are in fixed
proportions and any reduction of effluent, thus, requires a reduction in output of the chemical
industry. If the reduction in the brewery industry's costs exceeds the reduction in the chemical
factory's profit, there are potential gains from trade and the original level of effluent cannot have
been efficient. This observation leads to a possible solution to the externality problem presented by

Negative Externalities And The Effect On The Perception Of...
Introduction
Telling the reader what the essay is about and a brief overview of the different components of the
essay. This part is critical to capture the interest of the reader. This paper will cover what falls under
the general category of externalities, an externality arises when a person engages in an activity that
influences the well–being of a bystander but neither pays nor receives compensation for that effect.
If the impact on the bystander is contrary, it is called a negative externality, on the other hand, if it is
beneficial, it is called a positive externality. I will explain how microeconomic tools and materials
we have covered this semester apply towards externalities and then follow on to its historical
analysis. Then I will take it back to the role of the government with externalities which will then
lead to how externalities are relevant in my daily life as a student at Cal State Dominguez Hills and
why it is important to my readers to understand why. Society's interest in a market result ranges
beyond the well–being of buyers and sellers who contribute in the market. The market equilibrium is
not effective when there are externalities because buyers and sellers neglect the outside effects of
their actions when determining how much to demand or supply. That is to say, the equilibrium fails
to exploit the total benefit to society as a whole.
Descriptive Section
Apply microeconomic tools and materials discussed in class to help the reader understand the

Essay On External Cost Of Driving
To begin, data sets and results are presented in summary tables along with bar graphs in order to
easily compare changes for multiple groups. The conclusions reached are presented categorically
and are later on added as a total value. With this in mind, Lucas's results are as follow: the marginal
damages from local pollutants emitted from gasoline and diesel are $0.04 and $0.20 per liter of
gasoline and diesel respectively (Davis, 2017), the marginal cost from carbon dioxide emissions is
$0.09 and $0.10 per liter of gasoline and diesel respectively (Davis, 2017), the marginal cost of
traffic congestion caused by the increased use gasoline and diesel is $0.27 and $0.26 per liter of
gasoline and diesel respectively (Davis, 2017), and the ... Show more content on Helpwriting.net ...
Small conducted this study in 2014, it is titled: "Getting Energy Prices Right: From Principle to
Practice" (Parry et al., 2014). Lucas explains that previous studies measured marginal damages for
particular energy types and individual countries. Unlike previous studies, Ian W. H. Parry and
Kenneth A. Small were the first team of researchers to measure marginal damages for several
different energy types for large set of countries (Davis, 2017). As a result, data sets as well as
conclusions reached are heavily relied upon from this article.
Finally, Lucas discusses the prospects for alternative fuel vehicles for the purposes of reducing
negative externalities. In this section, he explains that there are various alternative vehicles that can
be used in reducing the external cost of gasoline and diesel including natural gas vehicles as well as
vehicles that rely on biofuels (Davis, 2017). Nevertheless, in the study conducted, Lucas focuses on
electric vehicles (EV) as it is perceived as one of the primary alternatives to fuel vehicles (Davis,
2017). In the article, Lucas offers a pessimistic outlook on EVs claiming that despite subsidizing the
purchases of EVs, it would not solve the problems of traffic congestions and accidents. As it is
mentioned: "Probably most importantly, alternative fuel vehicles do little to reduce traffic
congestion and accidents, two of the largest components of externalities. Subsidies for alternative
fuel vehicles might even

Eco/365
What is an externality? Provide at least three examples. How does one of the examples you provided
affect the market outcome? What is the role of government in addressing the implications of an
externality you provided as an example? Is it possible that a government's solution to a market
failure would worsen the failure? Explain your answer.
Externality is defined as an effect of a decision on a third party not taken into account by the
decision maker. There are two types of externalities being positive and negative. Second hand
smoke would be a negative externality. The smoker does not take into account the smoke emitted
from their cigarette. Education would be considered a positive externality. When an individual is
educated, their ... Show more content on Helpwriting.net ...
In regards to Apple, if the government was to only offer incentives to Apple, there would be a
negative externality for other companies that offer similar products.
#Another Response
Externality can be either positive or negative. If one is building a plant to extract oil from the
ground, the positive externality is the added jobs for the community. However, the potential
pollution from the plant could be conceived as negative. The externality affect is when one does not
control the impact from another person or companies decision. Another positive externality is the
improvement of a workforce in an organization that employs local labor. Pollution is widely viewed
as the top negative externality.
Pollution is a major issue in many communities. It affects the local population and the number of
people moving to the area, in addition to the potential workforce. If externalities result in an unsafe
community, it will result in fewer residents and less economic growth. Government controls on
pollution is very effective if patrolled. Many regulations are not monitored, thus companies often
find ways to avoid the regulations. Government officials need to

Main Purpose Of The Market
A market is actually a system where all the participants are engaged in exchanging goods, services
or informations. The main purpose of these exchanges is the profit. A market is called efficient when
supply and demand are equal and the price that the consumers pay for goods is equilibrium with the
cost arising from producer 's economic activities.
There are some goods which are non exclusive and non–rival in consumption such as Safety and
Environment. These are called Public goods.
However in shipping market participants are not reluctant to invest or to provide for measures on
safety and environment as they will not have any profit which is the main purpose of the market.
When market fails to control abuses of monopoly power, fail to provide all the necessary public
goods or fail to provide enough merit goods then it is called a 'market failure '.
The 'market failure ' led the state to intervene in international shipping in order to improve safety,
protect the environment and increase market 's efficiency.
There are many economic theories regarding the State intervention, into the market and the concept
of 'market failure '. This essay is analysing some of these theories in order to understand the
rationale for the state intervention, especially in the market of international shipping and maritime
transport. It is analysing also concepts of externalities which arise from market failure and the role
of state in providing support to navigation through many different ways.

Positive Effects Of Externality
A teenager just turned sixteen and has their driving permit, on their birthday they decide to take the
driving test. They end up passing the test allowing them to get their driver's license.The parents are
really proud of their kid and take them to the car dealership to look at a car.The kid ends up finding
a car and the parents buy the car for a birthday present. The addition of another driver and car onto
the road ultimately creates more traffic on the street. The addition of a new car and driver could be
viewed as an externality, but what exactly is an externality?
Economist Arthur Pigou stated that an externality is the ," costs imposed or benefits conferred on
others that are not taken into account by the person taking the action" (Pigou AP, 1920). The
Merriam–Webster dictionary defines an externality as a secondary or unintended effect(Merriam–
Webster, 1978). In other words an externality in economics happens whenever two parties are
engaging in business and a bystander is affected by the action that they had no part of being in.
These actions can either be beneficial or harmful to a third party.
2. Positive Externalities
Externalities can usually have two different outcomes, those being a positive or negative outcome to
the third party bystander. An externality that is considered a positive outcome is one that will benefit
a company or group that is not particularly involved in the activities of the two parties that are
working together. Say that someone produces

Tillock Externality
Tullock specifies a type of externality: in agreements that require collective action, certain
individuals resisting the majority decision can hinder the rest of the party's ability to acquire the
benefits of the action. They are thus causing an externality because they are injuring the majority's
ability to accomplish a goal. Tullock goes on to explain that the "reason government exists is that on
occasion (frequently) the agreement is incomplete," and government must compel "everyone to take
the required action" (Tullock 30). For example, in a taking motivated by what O'Connor calls
"blight," property owners that refuse to allow their property to be rebuilt are blocking redevelopment
that requires unanimous action in order to achieve the ... Show more content on Helpwriting.net ...
Tullock gives an example of having termites between his and his neighbor's land, and his neighbor's
being "reluctant to do anything about" them (Tullock 10). The neighbor could have extorted some
money from Tullock in order to consent to have the termites exterminated on his land. On a small
scale therefore, we can see how people might be rewarded for negligence. While the termite
problem may not necessitate an eminent domain taking, if the size of the reward increases, we can
see how the government might need to step in. If I chose to live in a house that was poorly
maintained and threatened to fall on my neighbor's house, I would probably be successful in
extorting money from my neighbors for repairs; since I have not earned this money through the
creation of value, it seems only fair that the government should step in to fix the externality by
repossessing my house. Thus, Locke's limitation of eminent domain to that which directly increases
production leaves room for people to extort money from destructive

Externalities
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 ... Show more content on
Helpwriting.net ...
When the government gets involved and taxes goods and services, it raises revenue for the
government, decreases the quantity of goods produced and consumed and therefore, both consumers
and the producer of the good will pay, splitting the costs of the tax and leveling up with society's.
Fees and regulations are similar to taxes. The government charge all firms the same fee and to set
the same standard for all firms. This will achieve the same level of emission reduction at a lower
cost for all firms and firms will have an incentive to reduce their emissions.
There are also solutions to a positive externality. That is to get the decision maker to internalize the
external effect. The difference with this and the negative externality is that with the negative
externality they would have to try to get the decision maker to see higher costs and with the positive
externality the government needs to somehow make the decision more appealing to the private
decision–maker.
A great example of this is getting a degree; it might not be as important or beneficial to you to get a
certain degree but the benefits that you could give the society with that degree can be significant, so
the government creates scholarships and incentives to motivate you and make it easier for you to get

an education and ultimately be part of the working society.
There are 3 ways of target the allocation problem of externalities, I talked about regulations,

A Business 's Responsibility For An Efficient Allocation...
It is a business's own responsibility to define the external economic environment to ensure their
market will be successful. When businesses are free and left to peruse their own private objectives it
is extremely important economic efficiency is carefully thought about as there are a range of market
failures that could occur which lead to government intervention. "Market failure occurs when
freely–functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of
economic and social welfare." (Geoff Riley,2012).To avoid market failure businesses must be aware
of changing market conditions.
All organisations have to face the 'Economic Problem' this is deciding what to produce, how to
produce it and who to ... Show more content on Helpwriting.net ...
Legal monopoly can be companies that operate as a monopoly under government order, these
companies will offer products or services at a structured price and can be independently run and
government regulated or both government run and regulated. An example of legal monopoly is the
price of alcohol or air flight prices, the government can always intervene and change the prices.
Natural monopoly are companies which produce a product in economies of scale for example
production would be permanently concentrated in a single firm rather than contested competitively,
such as water, gas and electricity firms. Local monopoly is usually where an organisation is the only
supplier in that area– for example a petrol station in a small town far from the city. They will receive
all purchases for that particular product as there is nowhere else to get it.
There a number of problems that can occur within production leading to market failure within an
organisation. Markets who are in high competition are often run by big firms with high monopoly
power which can lead to exploitation of suppliers, consumers and employees. Big firms also try
avoid direct costs which will lead to environmentally damaging use of resources. In order for the
govern–ment to attempt to correct their monopoly manipulating any stakeholders, The Competition
and Markets Authority (CMA) and The Office of Fair Trading, investigate possible abuse of market
power.

Monopoly Case Study
Chapter 15: Monopoly
Question 1: explain how the following industries practice price discrimination: movie theaters.
Different price is charge to different age range. Price is based to the buyers' age whether they are a
student, adult or elderly, most adult receives regular admission price while students and elderly
receives discount, this is because students and elderly are less likely not able to afford the full–price
of a movie ticket as they may not have income. Thus, this pricing strategy is used among the movie
theaters. Moreover, the price of the movie tickets varies on the time of purchase, movie theater may
charge less price in the morning/afternoon and charge more in the popular time such as evening or
Fridays.
Question 2: explain how the following industries practices price discrimination: airlines. ... Show
more content on Helpwriting.net ...
(Hints: Graph the market failure and explain the problem. Then show how the government action
will change the situation.) Without Government Intervention The air pollution imposes a cost on
people who breathe in the air because the increase in air pollution will affect the health of the
people.In the presence of the pollution, the social cost of the pollution exceeds the private cost.due
to negative externality the social cost curve is above the supply curve, in which the vertical distance
between the curve of private cost and the social cost is the external cost.In the graph it can be seen
that the optimal quantity is smaller than the market quantity, where QMKT is the free–market and
OOpt is the efficient output, Thus, there is a welfare loss(A, B, C)
In order to improve economic efficiency, the government can consider imposing green tax on drivers
and factories to reduce the pollution that is being emitted. In the graph the supply curve(private cost)
will shift to the left resulting in the market equilibrium equals to the social

Reasons for Market Failure and the Roles of Government
Reasons for Market Failure and the Roles of Government
To Improve the Market Outcomes What is market efficiency? Market efficiency is defined as all
participants in a market can get the maximum benefits and used the minimum cost and effect to
transact (BusinessDictionary.com, 2011). Besides that, the definition of market efficiency is covered
by the market and investor group. In other words, efficiency refers to the productivity or the size of
the economics pie. If the size of economics more big, the standard of living of people will be
greater. Market efficiency means that there are no externalities, no market power or competitive
power and it has the complete information. According to Dothan (2008), "the market efficiency is ...
Show more content on Helpwriting.net ...
It is known as non–rivalry in consumption, in other word, people who used the public goods will not
affect others. Public goods are the goods that everyone consumed and no one can be excluded
(Tutor2u, 2011). Only government can produces public goods. Examples of public goods are street
lights and traffic lights. If the cost of street light is $20 and normally it will benefit the consumers in
the same cost. However, street light is public good it not only benefits the consumers but also
benefit those people who not paying for it. Government will produce those public goods by using
the collected tax from citizen. When government builds more street lights in the road, it probably
will reduce the car accidents during night time. Therefore, it will benefit those who not paying the
tax. There are several roles of government with purposes to fine–tune the economics and stable the
economics. In addition, the government is also raising the standard of living of citizens, avoid the
high inflation and provide high employment rate (AcademicWritingTips Organization, 2011). The
roles of government are separate into two parts which are the use of monetary policy and fiscal
policy. According to AcademicWritingTips Organization (2011), "the monetary policy is including
interest rates, deposit reserve ratio and the use of the money supply; the fiscal policy is including the
use of government revenue". One of the roles of government is the regulation

Economics
what are externalities?
Externalities are common in virtually every area of economic activity. They are defined as third
party (or spill–over) effects arising from the production and/or consumption of goods and services
for which no appropriate compensation is paid.
Externalities can cause market failure if the price mechanism does not take into account the
fullsocial costs and social benefits of production and consumption.
The study of externalities by economists has become extensive in recent years – not least because of
concerns about the link between the economy and the environment.
PRIVATE AND SOCIAL COSTS
Externalities create a divergence between the private and social costs of production.
Social cost includes all the costs of ... Show more content on Helpwriting.net ...
If we assume that the producer is interested in maximising profits – then they will only take into
account the private costs and private benefits arising from their supply of the product. We can see
from the diagram below that the profit–maximising level of output is at Q1. However the socially
efficient level of production would consider the external costs too. The social optimum output level
is lower at Q2. This leads to the private optimum output being greater than the social optimum level
of production. The producer creating the externality does not take the effects of externalities into
their own calculations. We assume that producers are only concerned with their own self interest.
In the diagram above, the private optimum output is when where private marginal benefit = private
marginal cost, giving an output of Q1. For society as a whole though the social optimum is where
social marginal benefit = social marginal cost at output Q2.The failure to take into account the
negative externality effects is an example of market failure.
NEGATIVE CONSUMPTION EXTERNALITIES
Consumers can create externalities when they purchase and consume goods and services. o Pollution
from cars and motorbikes o Litter on streets and in public places o Noise pollution from using car
stereos or ghetto–blasters o Negative externalities created by smoking and alcohol abuse o
Externalities created through the mis–treatment of animals o Vandalism of public property
o

Negative Externality Of Alcohol
Alcohol is the most widely used drug in the world, because of its accessibility. The term alcohol
refers to the primary alcohol ethanol. In 2015 about 89% of adults in the United States stated that
they had consumed alcohol at some point in their lives. Alcohol is a demerit good, because it can
have negative effects on the consumer. The effects of alcohol consumption can also impact other
people and those spill over effects are called negative externalities. Negative externalities cause
market failure, because an individual's incentive for a certain behavior does not lead to rational
outcomes for society.
Negative externalities of alcohol consumption can be for example when a person is injured from bad
drinking habits, needs medical or psychological treatment, and their family has to pay for it.
In Figure 1 you can see that the external cost, being the therapy the family has to pay, makes the
curve for the marginal social cost (MSC) higher than the curve for the private marginal cost (MPC).
In this case the marginal social cost is the impact the person drinking has on others and the marginal
private cost is the price of the alcohol consumed. Now Q1, the socially efficient output, is a lower
output that the market equilibrium, at Q.
When a person's property is destroyed by someone who is drunk, for example, in a car accident, that
is also a negative externality of alcohol consumption. In Figure 2 you can see that 40% of the
highway fatalities involved alcohol and accounted for about 13,000 deaths in 2010 in the United
States. Here the marginal social cost would be the loss of a functioning vehicle and the payments to
repair the property, which were damaged. The marginal social cost is higher than the private
marginal cost and the socially efficient output is again lower than the output at market equilibrium.
The free rider problem does not apply to alcohol consumption as a negative externality, because
alcohol is not a public good. Free riders use public goods and do not pay for them. Alcohol is a
private good, because you have to buy it in a store and if you took the last bottle of chardonnay the
others cannot buy anymore chardonnay, so it is excludable.
Although you might think that there may be no social

Negative Externalities Associated With The Use Of Plastics
Plastic is lightweight, strong, inexpensive to provide to consumers, and has a chemical makeup that
does not allow it to decompose during our lifetime. This is a problem because plastic's success in
our society is causing us to overuse a product that is designed for temporary use with a material that
lasts for centuries creating a buildup of plastic within our landfills. The high mobility of plastic bags
makes them particularly problematic in society. Because of Cleveland's proximity to Lake Erie, it is
important to stop the flow of this material into this important natural resource. This paper
investigates the negative externalities associated with the use of disposable plastic bags and the
benefits of legislation that would ban plastic bags from being given out at retail facilities. Scale of
the Problem Chances are that at some point over the past week, you have obtained a disposable
plastic bag during a trip to a retail store. They are inexpensive to give to consumers and provide a
utility in making the carrying of retail products significantly easier. How many of these bags are out
there? How often are they recycled? The numbers can be staggering. According to a story reported
by NPR, a study done by Roland Geyer, an industrial ecologist at the University of California, Santa
Barbara, 8.3 Billion metric tons of plastic has been produced so far – enough to cover the country of
Argentina ankle deep. This production of plastic shows no signs of slowing and in fact has

Introduction to Externalities
INTRODUCTION
In this essay I will explain what externalities are, why they can be problematic, how they can be
addressed, the role of government and the potential effects of how governments choose to intervene,
concluding that transaction costs are a major determinant of the best policy response to the issue of
externalities.
WHAT ARE EXTERNALITIES?
Connolly & Munro (1999) describe an externality as "an action by one agent which affects
directly the well–being or production possibilities of other agents, but is chosen without regard to
those consequences". Externalities can be positive or negative. I'm living in oil–rich Bahrain, with
irritants such as pollution from oil production, smoke from sheesha pipes, traffic jams from ... Show
more content on Helpwriting.net ...
However, transaction costs can be so high that they exceed the benefits to be gained by negotiating.
The fisherman may decide he cannot afford a lawyer to pursue the oil company (perhaps the legal
rights are not clearly defined) and he may simply decide to fish elsewhere instead. Conversely, if the
site was near a popular tourist area and several large hotels were determined to protect their
livelihood, it may not be feasible or profitable for the oil company to pay them all off. None of the
above outcomes would produce an optimum result and that is usually why governments must step
in.
POLICY RESPONSES AVAILABLE TO GOVERNMENTS
* Taxation
A visual aid helps demonstrate the effects of taxation levied by governments on production of a
good/service which creates negative externalities, in order to better balance social and private
marginal costs, termed 'Pigouvian tax', after the economist who first examined their use.
Figure 1 – Optimal taxes on externalities. Source: Connolly & Munro, 1999, p.79 Figure 5.5
As output increases, marginal costs also increase, whereas marginal benefits (MB) decrease. The oil
company will produce oil up to the point at which their private marginal cost (PMC) equals their
private marginal benefit (Q°). Oil production also creates a social marginal cost (SMC) for local
residents, which will be above the private cost. If the oil

Storm Shelter Externality
An externality is side effect of an action that affects the well–being of a third party. Storm shelters
are an externality because not only are the owners safe but neighbors, animals, and others can also
enjoy the benefits of a storm shelter. Storm shelters are a positive externality because the third party
(the neighbors) gain a benefit from the shelters. The party causing the spillover from the shelter is
the owners. They are allowing others to come inside and receive the benefit the shelter gives by
being safe from the storm. I believe that the owners are behaving ethically by allowing the spillover
because it would be wrong and unjust to deny another human shelter to help them survive an event
like a tornado.
This externality is positive

The Theoretical Basis Of Congestion Costs
2.2 Theoretical basis of congestion costs (diseconomies)
One by–product of agglomeration is congestion, which arise as economic agents compete for limited
land, limited output markets, and limited fixed public infrastructure such as highways and
communication facilities. Other negative consequences of agglomeration such as environmental
pollution, noise, and high crime rates may also occur.
In general, congestion externalities originate from the difference between private and social costs.
The literature on optimal city size suggests that households and firms choose to locate in a city by
evaluating the prevailing average social costs (AC)–such as local taxes or commuting/transport costs
in the city, but ignoring the increased social costs their arrivals generate for the whole urban
population (Alonso 1971; Richardson 1972; Mills and De Ferranti 1971). Therefore, the average
social cost would usually be lower than the marginal social cost (MC) born by the city as a whole
(Alonso 1971; Richardson 1972; Mills and De Ferranti 1971). Firms and residents would continue
to move into the city as long as marginal benefits, as represented by marginal value of outputs (MP)
in the city, exceed the marginal social cost plus the opportunity cost of moving (MP > MC +
opportunity cost for moving) (Alonso 1971; Richardson 1972). The result is that cities would grow
to a size that is more congested than the optimal size for maximizing urban production, that size
being the point where the

One More Externality Article Analysis
In the paper "Comments: One More Externality Article" Peskin (1988) refers to the debate between
Freeman, Bird, and Baumol and Oates to determine the distinction between depletable and
undepletable externalities. Depletable means that if there is a fixed amount of pollution, it will be
reduced as one person "consumes" it. When there is not a fixed amount of pollution that is reduced
as it is consumed, then it is undepletable. For example, air pollution can be considered a depletable
externality, because air pollution can be reduced by each extra person who "consumes" it. On the
other hand, nuclear radiation can be counted as an undepletable externality, since nuclear emissions
are generally permanent damages that cannot be reduced when an extra

Marginal Costs And Its Effect On Market Efficiency
Marginal costs and benefits are utilized as a form of measurement of costs and benefits at a specific
level of production and consumption. Everyday individuals, groups, and institutions make decisions
based on our marginal evaluations of the alternatives. They do this by asking questions: "What will
it cost to produce one more unit", and "What benefit will be received by acquiring one more unit"?
In this essay, the author will define and discuss marginal costs and benefits and their effect on
market efficiency in the presence or absence of externalities.
What Are Marginal Costs and Marginal Benefits?
Marginal benefit is the gain you receive for doing anything one more time (Urban Economics, 8E).
Marginal benefit is typically measured in ... Show more content on Helpwriting.net ...
However, once they have one, they will only consider buying a second widget at 20 dollars. If they
buy a second widget from your shop, it is based solely on the value–laden perception that the
widget's benefit is worth the 20 dollars. If the consumers do not perceive that the widget has 20
dollars benefit or use, they will not purchase another widget at the 20–dollar price level. Therefore,
if your shop wants the consumer to buy widgets, the owner must either lower the price or offer some
other promotional benefit. Consumers ' marginal benefit is also referred to as "marginal utility"
(Urban Economics, 8E). According to the law of diminishing marginal utility, "as a person increases
consumption of a product, while keeping consumption of other products constant, there is a decline
in the marginal utility that person derives from consuming each additional unit of that product"
(Urban Economics, 8E). As the marginal benefit for widgets declines among your customer base, so
does the price they are willing to pay which in turn affects your marginal benefit as a widget
producer.
"Marginal cost is the total cost you incur to produce one more unit" (Urban Economics, 8E).
Following the example from the previous paragraph, it is the cost to make one more widget. Since,
marginal costs are

The Failures Of Market Failure
Market failure, in economic terms, refers to a situation wherein the free market fails to efficiently
allocate the goods and services. Or in other words, during market failure, another conceivable
outcomes (non– Pareto optimal) exist wherein a market participant is found to be made better–off
without making anyone else worse–off (Francis Bator, 1958). The failures in market can be seen as
the scenarios in which the pursuit of pure self–interest of an individual leads to inefficient results as
per the societal point of view and bearing high chances of improvement. Basically, market failures
occur when the market lacks economic efficiency.
Market failures may occur due to a plenty of reasons including asymmetries in information,
externalities, monopoly, time inconsistent preferences, principal agent issues, public goods, or non–
competitive markets etc. Therefore the market failure often requires the intervention of supra–
national institutions and self–regulated governments and organizations in that particular market
(Joseph Stiglitz, 1989). Micro–economists are usually involved in the task of identifying potential
causes of market failure and suggesting appropriate corrective measures. An important role is played
by such an analysis in number of public policy studies and decision making. Historical records show
us that governmental interventions have various impacts on the economy of its country. However,
poorly implemented governmental attempts for correcting market failure

Sugary Beverages and Junk Foods are Causing Obesity in Mexico
According to Agricultural Organization and UN Food, Mexico's adult obesity rates are above that of
the United States, with an obesity rate of 32.8% compared to the 31.8%. Junk food and sugary
drinks have caused these rate to rise, which makes them negative externalities of consumption,
which the private benefits to consumers of a good are greater than the social benefits of its
consumption, in other words the good creates spillover costs on a third party. A tax, payment made
by an individual or a firm to the government, has been imposed by the Mexican government to
eliminate such negative externalities. The tax is expected to decrease demand for the good. The
Cross price elasticity, the measure of the responsiveness of consumers of one ... Show more content
on Helpwriting.net ...
A tax on these goods decreases the supply to S+tax, which drives up the price of the good. Those
who consume these goods now witness increased prices at Pso. Due to the law of demand its
expected to see a lower quantity of these goods consumed. Fast food goods, although have a steep
demand curve meaning demand is very price inelastic, an increases in prices for the good won't
receive much of a response but if the government is to impose a tax such that it greatly increases the
price of fast foods to gap that of healthier food, then we can begin to see some response from
consumers. The equilibrium quantity, therefore falls closer to the social optimum (Qso). However,
we witness decreased consumer surplus from A+B+C+D to A and decreased producer surplus from
E+G+F to B. The corrective tax, imposed on fast food and sugary beverages has in fact eliminated
the externalities, which corrects the overallocation of resources. In the case where the tax imposed
had made the prices for fast foods greater than that of healthier food then these goods would have a
positive cross price elasticity. For example, if there is an increase in the price for fast food by 10%
and quantity demanded for healthier food increases by 2% then XED = +0.2, and because this is a
positive number we can see that they are substitutes. In the diagram to the left we witness that these
goods are cross price elastic. When an increase in prices for fast foods (P1 to P2 ), an

Externality
This report is focused on identifying the externality, analysing the possible solution to internalise the
externality.
The market for fast food is a market failure because the price of fast foods does not cover the social
costs of consuming them.
Fast foods contain low nutritional value and are high on fats, sugars and sodium (salt). As a result
fast a major cause of obesity in New Zealand. Eating fast foods can also cause a variety of other
health problems including: High cholesterol, high blood pressure, depression, respiratory problems,
dental problems and diabetes. High cholesterol, together with high blood pressure are a leading
cause of strokes. Some studies have also found a link between diets high on fast foods and negative
affects on the brains synapses. All these medical conditions put a lot of stress on our health care
system. In 2014 the New Zealand parliament concluded that the health care costs attributable to
obesity, and diabetes was around $686 million. And the costs of Strokes to the New Zealand health
system is estimated to be around $700 million. From these ... Show more content on Helpwriting.net
...
This is because there is a spill over cost to society that is not reflected in the private benefit (MB) of
fast foods. So MSB lies below MB.The difference between these two is the Spill over cost or
externality.
The Spill over costs from excessive fast food consumption come from the cost of health care, that
people who consume too much fast food will require in the future. These costs of health care could
include heart surgery, cert transplant, cholesterol medication, diabetes medication and blood
pressure medication.
So at the private equilibrium PM dairy is under priced, as it only reflects private costs and benefits.
As a result dairy is being overproduced at QM. Society would prefer if supply was at QS and if the
price was at PS, to reflect the true costs, both social and private from fast food

The Externalities of Smoking
Introduction
In the past decades, an increasing number of countries have imposed a ban on smoking in public
places, including restaurants and bars. Unlike other regulations of cigarettes such as tax or
promoting ban, this territorial smoking control sparked heated debates. While some argue that the
implementation of this regulation is inefficient and reduce the public welfare (Viscusi, 1994;
Tollison and Wagner, 1992; Lambert, 2006), others claim that smokers do impose negative
externalities to both non–smokers and themselves (Gravelle and Zimmerman, 1994; Hanson and
Logue, 1998).
In this study, by explaining the externalities of smoking, we try to examine the territorial restriction
on smoking using some basic economics words. We explore ... Show more content on
Helpwriting.net ...
In Figure 3, the social demand curve is above the private demand curve because the social demand
curve takes into account the consumption externalities of smoking. The gap between the two curves
reflects the negative external benefits of smoking. Same as the external costs of smoking in Figure
2, the equilibrium quantity QMarket is not the optimal quantity. The social optimal quantity
QOptimum is less than the market equilibrium quantity QMarket.
Externalities of Smoking
Combine Figure 2 and Figure 3, we can get the externalities of smoking, which is illustrated by
Figure 4.
In this figure, both the externalities of smoking in supply and demand have been internalised. The
social optimum equilibrium is the intersection of Social Cost Curve and Social Benefit Curve.
The Ban on Smoking in Public Places
In order to deal with the market failure, policy makers can enact some regulations on smoking such
as tax increase on cigarettes, restriction on sales and ban smoking in specific places. All these
regulations on smoking can be classified into two types: price–based policies and non–price–based
polices measures, and ban on smoking in public places is a non–price–based polices (Goel and
Nelson, 2006). How does the restriction in public places works? As we have discussed above, policy
makers can fix the market

Pesticide Pollution
Fertilizer and pesticide usage has increased dramatically worldwide, especially in China. Twenty
years of uncontrolled economic development have created serious, chronic air and water pollution.
In order to support China's growing population, the country has drastically increased its usage of
fertilizers and pesticides in the agricultural sector. China consumes around a third of global
fertilizers, with rapid growth in use in recent years, driven largely by higher fruit and vegetable
production. Excessive use of chemical fertilizers and pesticides threatens both public health and
agricultural productivity. Many farmers choose to use chemicals to keep weeds and pests from
destroying their crops while adding more nutrients to the soil. Yet such benefits do not come without
environmental costs––namely the pesticide pollution of China's streams, rivers, lakes, and even
coastal areas, as these toxic chemicals runoff into nearby waterways, contaminating the food,
drinking water causing massive health problems.
While fertilizers and pesticides, as stated above, provide economic benefits for the farmers in terms
of increasing yields; but also provide adverse impacts. These impacts on the environment are called
negative externalities. According to researchers, not many measures are being taken in order to
enforce safe, organic, and healthy fertilization. If a good has a negative externality, then the cost to
society is greater than the cost consumer is paying for it. Since

Market Failure
Jordan Alexander February 14, 2012 Economics Essay – Market Failure 1. Markets fail when they
under or over allocate resources of production or consumption, relative to the best interests of
society. Market failure occurs due to four main factors: the existence of externalities, asymmetric
information, the abuse of monopoly power, and inequalities and wealth and development. The
existence of externalities means that the market mechanism does not always work efficiently.
Markets run on a mechanism that only takes into account the private benefit and cost for a good.
Besides the marginal private cost and marginal private benefit, there are the marginal social cost and
marginal social benefit, which are external. As a result, ... Show more content on Helpwriting.net ...
Advertising is used in order to increase demand for a merit good (shift the demand curve to the
right). The increase in demand would mean that the price would increase, and therefore, the quantity
supplied will increase. Graph 5. If the good has very large positive externalities, the government
might decide to provide the good directly for free, as with public goods. In most places, primary
school education is made free for all, and is provided by the government. Another method is limiting
its price to a certain amount, so that quantity supplied will be more than the market price. This
occurs with medical care in some places. Also, making the good free and then rationing it is a
common solution, which is often done with medical care for children or the elderly. Graph 6.
Another option is for the government to offer subsidies to private consumers. Therefore, the supply
curve would shift to the right, lowering the price and increasing the quantity. This means that the
government is relying on the market system, yet it is altering it. The final method is for government
to use legislation to force people to buy the merit good. For example, car owners might be forced to
buy car insurance. This lowers the cost for taxpayers and will be efficient, yet it will have the
problems of people breaking the law, as well as the possible high cost to low–income households. 7.
Demerit goods are private goods with negative externalities, which cause harm to society. For

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