Tax breaks are given to property owners who install fire prevention equipment because it reduces the...

Tax breaks are given to property owners who install fire prevention equipment because it reduces the potential of fires spreading to nearby buildings. The equipment creates a positive externality (its beneficial for the homeowner AND to the local building owners). What measures could be put in place for business owners in a particular area to reduce or eliminate the production of negative externalities? Do external costs play a role? Can the negative externalities be eliminated? Explain..

Expert Solution

One common approach to adjust for externalities is to tax those who create negative externalities. This is known as "making the polluter pay". Introducing a tax increases the private cost of consumption or production and ought to reduce demand and output for the good that is creating the externality.

The Way to solve the negative externality problem is to simply tax the producer the amount of the negative externality

Some examples of negative production externalities include:

Air pollution. Air pollution may be caused by factories, which release harmful gases to the atmosphere
Water pollution
Farm animal production
Passive smoking
Traffic congestion
Noise pollution

Measures could be put in place for business owners in a particular area to reduce or eliminate the production of negative externalities are -

- Proper eleimination and disposal of Scarps and plastics

- Checking of Creating polloution Equipments and time to time change them.

- Probhition on playing loud music or volume.

- Timely checking of Machinary and to check of the Scrap and defected goods produced by that particular machinary so that in case of abnormal defects - measures to be taken to rectify that.

We cant eliminate the Neagtive Externalities due to the reasons that we can stop our factory or machinary and our business activities. What we can take is to make changes or control on our Negative Externalities.

ekkarill92 answered 1 year ago

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