Question

Discuss one negative and one positive externality that you have witnessed recently that has not already been used in the book or power points. Who are the third parties affected by these externalities? Why does the externality exist? Is there any possibility of eliminating the externality if it is an external cost? How could the government intervene to try to correct the market failure in these cases?

Answer 1

Answer:
In our way of life we see numerous economic activities going around us which now and then influences the third disconnected party and not the causers of externality.

A case of positive externality is healthcare. Government gives free healthcare, protections scope at lower premiums to the center and lower pay bunch. This eventually leads to superior treatment and remedy of infections. This makes a difference in anticipation of spreading illnesses among healthy people. Or the sound people within the society is the third party getting benefited from healthcare program of Government. Externality exists because lesser the unfortunate individuals or speedier the treatment of illnesses would cruel lesser chances of spreading in case the malady is communicable. So a positive externality of healthcare exists. Positive externalities are empowered and government does not mediate.

Taking the case of negative externality, like, bill passed by the Senate giving the Food And Drug Organization control to direct the sale, make and marketing of tobacco items. This occasion appears to have positive impacts on the society. But at the same time since tobacco could be a moderately inelastic great, huge producers would make utilize of the circumstance to dispatch modern items which are lesser destructive and drive out littler competitors from the market. This would lead to monopolization of tobacco market. The third party here is shoppers of tobacco, chain smokers who would be influenced by cost rise and less items. A huge parcel of their salary eaten absent by tobacco items. The externality in taken a toll sense exists since request for tobacco is inelastic. The plausibility to nullify such a negative externality would be by Government intercession, cost ceiling on tobacco items. That would halt the cost charged by producers to be over the top.

Taking another case of negative externality, For instance, if government passes the regulation that control to direct the sale, make and marketing of alcohol items and its subsidiaries. This occasion appears to have positive impacts on the society. But at the same time since alcohol could be a moderately inelastic great, huge producers would make utilize of the circumstance to dispatch modern items which are lesser destructive and drive out littler competitors from the market. This would lead to monopolization of alcohol market. The third party here is shoppers of alcohol, drinking excessive alcohol who would be influenced by cost rise and fewer items. A huge part of their salary eaten absent by alcohol items. The externality in taken a toll sense exists since request for alcohol is inelastic. The plausibility to nullify such a negative externality would be by Government intercession, cost ceiling on alcohol products. That would halt the cost charged by producers to be over the top.

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