Question

1. Please give an example of a product, that you use on a regular basis for which some of the cost of production or consumption are externalized, also explain why this is.
   
2. What will be the long-term cost for or impact on society of this externalization?
3. How much more would you be willing to pay for that product in order to have all costs factored into the price?

Answer 1

Externalize cost refers to cost which is paid by third party which is not the part of transaction .For example we use kitchen stoves on daily basis but they generate gases like nitrogen which produces pollution in air which is inhaled by other people . The cost is also paid by other people as they affect their health .cost of stove is paid by the person using it but it's side affects are taken by other people's also .so it is not one person that bears the cost . It is shared amongst many .

Willingness to pay depends on the cost of externality i.e whether it is huge or less . If a good is of daily use I would easily pay more to minimise it's external cost as that good has no substitute and is used on daily purpose .if their will be no use of kitchen stoves making food will be not possible which will have huge affect on daily life .so I would not mind spending more if the cost of externality is minimised to an extent .