Question

Environmental pollution is a major threat for today's contemporary world. Explain the
intervention measures available to limit externalities by a country. Mention at least one example for each measure.

Answer 1

SOLUTION

EXTERNALITIES AND THEIR MEASURES

EXTERNALITIES

• An externality is a cost or benefit which is actually experienced by the one who is not related to the economic activity. ( unrelated third parties )
• Externalities may be of two kinds, The positive and the negative externalities.

POSITIVE EXTERNALITES

• Any economic benefit which is been experienced by the one who is not related to the economic activity ( unrelated third parties ) is known as postive externality.
• Despite the benifits, it may also cause market inefficiencies.
• Examples: Infrastructure development, R&D activities, individual education and vaccination.

NEGATIVE EXTERNALITIES

• Any negative consequences which is been faced by the one who is not related to the economic activity ( unrelated third parties ) is known as negative externalities.
• Major externalities are negative
• Examples: Air, water, noise pollution.

POSITIVE AND NEGATIVE EXTERNALITIES - MEASURES

TAXES BEING CHARGED

• Taxes are being imposed by the government on goods and services that actually creates externalities.
• This might help to discourage activities being carried out by the third unrelated activities.
• Example: Corrective tax - A tax which is imposed by the government to reduce environmental pollution.

SUBSIDIES

• Subsidies are the one which is been provided by the government that helps to stimulate certain activities.
• It is generally carried out to increase the consumption of goods and services.
• Example: Export Subsidies- Export subsidies is been used by the government to balance the economy and the government subsidizes the cost.