Question

What is the definition of a negative externality? Give three distinct examples of negative externalities that relate to environmental economics, explaining how each one satisfies the definition of a negative externality

Answer 1

Negative externalities occur when the product and/or consumption of a good or service exerts a negative effect on a third party outside the market. In other words, externalities are classified as negative when the social cost outweigh the private costs.

Negative externalities are common where there are not any property rights over assets and resources. And it results in exploitation and misuse of resources by the people. For example, when the government doesn't impose stricter laws on pollution, people and industries go on polluting the environment because they don't have any property rights and inturn it results in negative externality.

Negative externalities includes air pollution, water pollution, traffic congestion, smoking, loud music(noise pollution).

1. Air pollution: Air pollution caused by factories and individuals results in a negative impact on the environment. The factories release harmful gases like carbon monoxide and carbon dioxide which causes many problems wheather it's on environment or on any particular individual. So in this example air pollution clearly exerts a negative effect on the environment and hence it's classified as negative externality.
2. Water Pollution: Water pollution by the factories and industries are caused when they release harmful wastes directly,without treatment, in the water. And this again results in the death of aquatic animals in the water and due to which fishermen aren't able to earn money. Also, it contaminates the water supply and causes many diseases to human beings. Water pollution also exerts negative impact on people as well as on the environment, so it also have all the characteristics of negative externality.
3. Loud Music: Loud music falls under the category of noise pollution. Loud music causes ear pain and irritation. When someone plays very loud music it causes problem to other people and further also hinders their productivity. So thats why it's also considered as an example of negative externality.