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lectur1-page19 - These two companies were not associated...

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Another example of the obvious affects of a negative externality, and an example of the not so obvious affects can be derived from the Imperial Foods incident in Hamlet, N.C. In 1991, the owners of Imperial Foods padlocked the fire exits of the food processing facility because of product losses that were alleged to be taking place. In other words, employees were alleged to be carrying “stuff out the back door.” A fire occurred within the plant, and I believe 28 people lost their lives due to the fire exits being locked. The obvious recourse here was to pass more stringent inspection laws and hire more inspectors inspection laws and hire more inspectors. The not so obvious negative externality was born by a small sandwich making company in Goldsboro, N.C. named the Imperial Sandwich Company.
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Unformatted text preview: These two companies were not associated with each other in any way. The only thing they had in common was a similar name. As are result of the Imperial Foods fiasco, Imperial Sandwich Company received numerous phone calls and letters that were not Sandwich Company received numerous phone calls and letters that were not flattering. Businesses that confused Imperial Sandwich Company with Imperial Foods; canceled orders. Convenient stores refused to do business with them anymore. Imperial Sandwich Company quickly faced financial problems. The company was salvaged only after changing its name to disassociate itself from Imperial Foods. How does Imperial Sandwich Company recover its loses due to Imperial Foods lack of rational behavior? We have a negative externality. 19...
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