StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

The Externalities - Assignment Example

Cite this document
Summary
The paper "The Externalities" tells us about the outcomes of a transaction that fall on third parties who are not the parties involved in the transaction. There are really only two types of externalities- positive externalities and negative externalities…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER93.3% of users find it useful
The Externalities
Read Text Preview

Extract of sample "The Externalities"

?abezugly [Manager] 24 November Externalities Externalities can be defined as a benefit or cost that arises from the result of an economic transaction, and in turn affects people who were not participating in that transaction. To put it more simply, externalities are the outcomes of a transaction that fall on third parties who are not the parties involved in the transaction. There are really only two types of externalities- positive externalities and negative externalities. Positive externalities occur when the social benefit of the transaction is greater than the private cost of the transaction. Negative externalities occur when the social cost of the transaction is greater than the private cost of the transaction. When economies have competition and no externalities, the markets will allocate resources in order to maximize the surplus available. However, when or if these conditions are not met, market failure may occur, as the market has not achieved the optimal outcome. If the parties involved can bargain without cost over the allocated resources, then the private market will always solve the problem of externalities. However, we realize this is not the case in all circumstances and therefore may require government means of intervention to correct the imbalance. Market failures in this case are failures only in the limited sense that they involve transaction costs that can be weakened by substituting internal organization for market exchange. (Unknown Author. “Market Failures and Externalities.” BasicEconomics.info). Market failures are affected by all of the following: static markets, contractual incompleteness, strategic misrepresentation risk, information processing effects, and institutional adaptations. (Williamson Oliver E., The American Economic Review). These influences all play an integral role in the steps to market failure. The justification for government intervention usually comes about as a result of market failure within a particular market. This government intervention is implemented through the means of public policy, taxes, subsidies, bailouts, regulations, and wage and price controls. The government may also include attempts to correct market failure through the re-allocation of resources. A prime example of this would be the recent government bailouts and stimulus packages put together by Obama and Congress. There are several different perspectives about the cause of market failure, but market failure will always occur if there the market is ‘monopolized’ or a small group of businesses hold significant power. Some market failures are also due to the nature of the good or service being a public good. Negative externalities affect social cost much greater than the private cost. A great example of this would be the seat belt law and helmet law for motorcyclists. There are several times when we have sat in a car and wondered why should I put my seat belt on? I am only riding around the corner… People have often questioned whether the government has the right to tell someone to put on their seat belt or wear a helmet when riding. The negative externality is derived from the scientific data that shows us that people involved in automobile accidents that wear seat belts and helmets have much less greater injuries than those that do not. These safety devises can greatly reduce fatalities associated with the incidents. Society as a whole, often times must foot the bill of these injuries through tax dollars because many of the people involved in these crashes do not have enough insurance. When you add medical bills, missed work, disabilities, and foster care- the social burden can become quite great. Also a lot of the funding that goes behind programs is tied to safety compliance. (Unknown Author. Cals.ncsu.edu) A great example of a positive externality would be the new green energy initiative that is taking place. In the past couple of years, the U.S. government has dramatically stressed the importance of fuel independence from the Middle East, and has sought ways to increase fuel production in the United States. As a result, the U.S. government has subsidized research into alternative energies and fuels by creating programs to match investor funds, and create tax breaks for private investors. This is a positive externality in that government spending has been re-allocated to support these projects. These projects allow for greater job creation, economic dependence, a cleaner environment, less war and violence, and lower cost of goods for foreign products in the future. (Flattau, Edward. “Consider Externalities When Discussing Alternative Energy.” Huffington Post.) When looking at positive and negative externalities, the key focus is really on the social cost to society. The reason that alternative energy is such a great positive externality as opposed to fossil fuels or building new refineries, and or nuclear plants, is that although more energy can be produced there is no harm to the greater good environmentally. Another example of a positive externality is public education. Unfortunately, we see a lack of government involvement in this externality. This may be because that the direct result of public education is hard to quantify. However, if we did not educate the masses where would that leave us? This one may sit on the fence with some politicians because there is no direct correlation between education, and the creation of private goods that in turn will stimulate the market. Public goods are difficult to distinguish from private goods in the sense that without government action people may attempt to become free riders, enjoying many of the benefits while letting others pay for them. (Callahan, Gene “What is an Externality?” The Free Market). Government can do several things to intervene in the case of market failure. In the first example we see that the government intervenes by placing laws into effect in order to stop people from not wearing their seat belts. Fines are imposed so that people are not crashing and dying at a greater rate than without the requirement of the belts and helmets. These fines also go back into funding the government budget as they are once again reallocated as seen fit. Without government interaction in the energy business we would see the more prevalent monopolies of fossil fuel domination exist. The environment would be of little or no concern as large fuel conglomerates continue to produce dirty fuels at the cost of our environment and domestic jobs. (Flattau, Edward. “Consider Externalities When Discussing Alternative Energy”. Huffington Post). We would continue to see more violence and turmoil, as our society would need to find ways of obtaining fuel. Government subsidizing of alternative energy allows for cleaner fuels, an increase in jobs, tax cuts for domestic investing, and a better environment. Lastly public education is of upmost importance, yet seems to lack enough government intervention. Public education does not necessarily produce a direct private good, but the individuals that are educated in the system will one day be productive in our society. We must ask the government if they do not allocate enough funding into the programs, what would you have these students become? Could it be, that this is the reason why nations that are increasing in economic wealth stress the importance of education so much? It is time for the U.S. government to seriously consider all of these externalities and the role that they will play in affecting our future social costs. It is clear to see that externalities are naturally created, as there will always be a constant struggle between the social cost and the private cost. Public safety, alternative energy sources, and public education are all real examples of externalities in our society. Without government intervention we will continue to see market failures and private goods outweighing the social cost. Capitalism is our natural course, for better or worse, but we still must realize the ways in which social costs will affect the masses if ignored. Reference: Cactus. “Externalities and the Case for Government Intervention”. Angry Bear. 05 October 2007. Callahan, Gene. “What is an Externality?” The Free Market. August 2001. Volume 19, Number 8. Flattau, Edward. “Consider Externalities When Discussing Alternative Energy”. Huffington Post. 5 November 2010. Hajara. “Externalities”. www.tutebox.com 28 April 2011. Kehinde, Opemipo. “Government Action to Reduce Externalities”. Clueless 3655. 01 November 2010. Liebowitz S.J., Margolis, Stephen E. “Are Network Externalities a New Source of Market Failure?” www.utdallas.edu 28 April 2011. Unknown Author. “Market Failures and Externalities.” Basic Enonomics.Info. 28 April 2011 Unknown Author. “Negative Externalities”. www.cals.ncsu.edu 28 April 2011. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Externality Assignment Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/family-consumer-science/1419500-externality
(Externality Assignment Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/family-consumer-science/1419500-externality.
“Externality Assignment Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/family-consumer-science/1419500-externality.
  • Cited: 0 times

CHECK THESE SAMPLES OF The Externalities

Waste Management in Kuwait

Identification of the problem is a key factor here and it involves looking at all The Externalities of the various economic activities and the economic activities that are associated with them.... There are various environmental issues facing Kuwait and also all of these have different externalities.... By the use of a demand curve, we can determine the net social benefit and the marginal private benefit and determine the causes of these externalities....
5 Pages (1250 words) Research Paper

ECONIMICS 405: Assignment2: Externalities

These externalities might be allowed to exist since the major projects that bring The Externalities are as well important and necessary to humanity.... Both affected parties and the stakeholders therefore have a role to play in mitigating The Externalities.... For negative externalities, the government should put unfriendly measures to make sure that The Externalities are controlled and the affected people are compensated.... externalities Name: Institution: Course: Instructor: Date: externalities Introduction externalities are those effects of a project to the environment around them, which are indirect and were never intended as the major purpose for that project as from its initiation....
3 Pages (750 words) Assignment

The Externalities of Education

Higher income boosts the economy that in turn The Externalities of Education 7th, August, The Externalities of Education This paper identifies three positive externalities of public education as higher income, social cultural diversity, and better work force (Kling, 2008).... This paper identifies three positive externalities of public education as higher income, social cultural diversity, and better work force (Kling, 2008).... Public Goods, externalities and education....
2 Pages (500 words) Essay

The Externalities of Education

ublic Education is widely known for generating externalities for the society, for it is a well The Externalities of Public Education By: The Externalities of Public Education Externalities are the side effects registering on an unrelated third party; occurring through any economic, social, political and educational activity, conducted by the producer or consumer (tutor2u, 2013).... externalities are the side effects registering on an unrelated third party; occurring through any economic, social, political and educational activity, conducted by the producer or consumer (tutor2u, 2013)....
2 Pages (500 words) Essay

The Externalities of Education

hree major positive externalities of public education are The Externalities of Education Externality refers to the loss and benefit of consuming goods and services affects the people who are actually not actually consuming the same.... Therefore, externalities can be positive or negative.... Both public and private education has positive or negative externalities. ... Therefore, externalities can be positive or negative.... Both public and private education has positive or negative externalities....
2 Pages (500 words) Essay

State policy intervention on sports economy

The market fails to consider The Externalities; therefore the state policy will assist in providing subsidies with positive externalities.... This research is being carried out to justify that whether the state policy intervention is favorable or unfavorable for the economy.... The role and the importance of the government in developing the sports have been also discussed in this paper....
8 Pages (2000 words) Term Paper

The Externalities of Petroleum Sector in Saudi Arabia

"The Externalities of Petroleum Sector in Saudi Arabia" paper defines the concept of externalities, the background of petroleum production in Saudi Arabia, positive and negative externalities of petroleum sector, and positive externalities and their effects on people's lives.... The model of externalities may be said to involve three key issues....
10 Pages (2500 words) Term Paper

Factors Affecting the Fall of Oil Price

The observation is that indeed as the prices of the industry continued to fluctuate, this instability of the pricing, added to the demand of the precious energy commodity creates worry over The Externalities related to the industry.... The governments continue to factor in these externalities to develop strategic approaches to sustain the oil industry and its impact on their individual environmental and economic sustenance....
12 Pages (3000 words)
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us