Question

In: Economics

Is this issue of externalities (the tragedy of the commons) a worthwhile issue for people and...

Is this issue of externalities (the tragedy of the commons) a worthwhile issue for people and governments to focus on? Do you have examples of where you were affected by an externality? What actions do you think are reasonable to prevent negative externalities like overfishing, over foresting, etc?

Solutions

Expert Solution

Yes the issue of Externalities is a worthwhile issue for people and governments to focus on.

Externality: Externalities arise whenever the actions of one
economic agent make another economic agent worse or better off, yet the first agent neither bears the costs nor receives the benefits of doing so:
Example: a steel plant that pollutes a river used for recreation .

Example where I affected by Externalities: There is a battery factory near my house which emitted toxic air from it's chimney so I have to take breath in that polluted air which affects my health.

There are two classes of tools in the government’s arsenal for dealing with externalities: price-based measures (taxes and subsidies) and quantity-based measures (regulation).
Which of these methods will lead to the most efficient regulatory outcome depends on factors such as the heterogeneity of the firms being regulated, the flexibility embedded in quantity regulation, and the uncertainty over the costs of externality reduction. So govt can increase tax on over fishing or can limited the quantity of fishing or foresting.


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