Chapter 16 - Economics Chapter 16 Externalities Externality...

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Economics – Chapter 16 – Externalities Externality: a cost or a benefit that arises from production and falls on someone other than the producer, or a cost or a benefit that arises from consumption and falls on someone other than the consumer. -We call an externality that imposes a cost a negative externality and we call an externality that provides a benefit a positive externality. Negative Externality: an externality that arises from either production or consumption and that imposes an external cost. Positive Externality: an externality that arises from either production or consumption and that provides an external benefit. -we identify externalities as four types: Negative production externality Negative consumption externality Positive production externality Positive consumption externality -example of negative production externality (these are the most costly and widespread).: Congestion: the costs of congestion are time & fuel costs. Each person on a congested highway is imposing a cost on the other drivers. Pollution & Carbon Emissions: economic activities pollute water, land and air. 60% of air pollution comes from road transportation and industrial processes. Air pollution is getting worse in developing countries but is improving in the world’s richest countries. This is an improvement since in rich countries have increasing vehicle use, increase energy consumption, and increases in population. Carbon emissions and emissions of other global warming gasses are on the rise. These emissions cause acid rain, which damages trees and crops. Airborne substances such as lead are believed to cause cancer. Increased carbon concentration is creating global warming and potentially extremely costly climate change. Some studys have shown that in order to combat climate change we need to we need to cut emissions to 75% of their current levels. The cost of these costs would be high and is estimate to cost people in rich countries about $750 per person every year. Technology changes that cut costs, lessen air pollution and slow the carbon buildup are possible either now or with further research and development. Pollution-free electricity can be generated by harnessing wind power, solar power, tidal power or geothermal power. There are 2 alternatives to polluting the waterways and oceans. One is chemical processing of waste to render in inert or biodegradable and the other is to use land sites for storage of nuclear waste in secure containers. -Negative consumption externality examples: smoking tobacco in a crowded confined space a noisy party or an outdoor rock concert permitting dandelions to grow in lawns and not picking up leaves in the fall -Positive production externality example:
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if a honey farmer places beehives beside an orange grower’s orchard.
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