Positive and Negative Externalities - Essay Example

Positive and negative externalities An externality is defined as a cost or any other benefit that comes from an activity to any party that is not involved in the process. These are mostly considered third parties since they do not have direct connection with the activity. Externalities affect the third party either positivity or negatively, depending on the outcome. Though they have little to control some of these activities, they end up paying for the cost and at times enjoy the benefits that are accrued from these activities. In essence, externalities are the effects of production or consumption of products and the outcome is passed to the society. However, the society has little to control these externalities. The first positive externality is technological improvement. Some firms have been on the frontline in investing in technology. The firms ensure they have the best technology to assist in production of their products. As such, these products are enhanced to give ultimate services to the people that need them. In such a position the firms are acting as a positive accrual to other firms. Other firms are likely to benefit from this technological improvement (Barr, 45). When there is change in one firm’s technology, the other firms are likely to benchmark this opportunity. As such, they will purchase other machinery that conforms to the stated technology. These industries and firms will have an improved way of producing products and they will extend the positivity to other firms, which are not particularly involved in the production. When there is an improvement in technology, there are various aspects which are improved in the society. For instance, when there is enhancement in technology, it is considered that pollution is likely to reduce. When the pollution is reduced, there are various aspects which are improved in the society. For instance, the society does not feel the pinch of having to inhale clean air. As such, their health status is maintained. This reduces any expenses that are incurred by the society in terms of treatment for complications in their health (Barr, 123). Similarly, it is guaranteed that there will be lower water pollution. As such, the society will have better water services. The water pollution will be reduced in the society, which gives the whole society clean water to use. It is evidently seen that the society did not incur any costs in the acquisition of technology. However, they are getting better water which is clean and hygienic. The same applies to the other firms. Initially, the firms did not incur any costs in getting information about the new technology. However, they are now in perfect shape in preventing pollution. A negative externality in production is pollution. Pollution is one of the most threatening aspects in production. During production, many firms exhale and release dirty water and air. This dirty air and water has various effects on the environment. First, dirty air makes the environment unpleasant to live in. This makes the life of other people uncomfortable. When people are not living in a comfortable environment, it is not entertaining. As such, the people will have to make sure they get solutions to these problems that are instigated by pollution from production firms. Apparently, some firms take it as their own initiative to stop pollution. This is an ideal approach in stopping pollution in the world. When all the firms initiate strategies that will reduce pollution, there is a likelihood of having a better environment that is not affected by the negativities of pollution. It is a prudent approach by the governing bodies to ensure that pollution is reduced in the whole world. With technological improvement, scientists have considered that pollution is one of the negative effects in the world (Barr, 65). For instance, pollution is responsible for global warming. The global warming effect has affected many parts of the world and they are looking for strategies of reducing its effects to the world. This creates a scenario where some people want to treat a problem that would have been prevented. In actual sense, there is a need to reduce pollution as its consequences are dire. Secondly, climatic changes have been instigated by the pollution in the world. When there is an increase in pollution, the weather is affected, which later affects the climate. The climate in these days has been very unpredictable due to the pollution that has affected it. Therefore, the whole world is experiencing adverse climatic condition s due to the pollution in the world. Pollution is a menace that should be regulated. Therefore, there is a need by the governing bodies to ensure pollution is kept at low levels. To begin with, the regulations should state the type of machinery that releases low levels of pollutants. Secondly, the firms should be allowed to produce a certain and regulated amount of waste. Release of more waste would attract a fine. Thirdly, the firms should look for ways of using alternative energy, with low levels of pollution (Barr, 212). This will be beneficial to the whole world as most of the people in the production levels will achieve the wanted advantages. However, if the pollution is not regulated, there is likelihood that the world will not be habitable in the coming centuries. Pollution will have adversely affected the climate, increased global warming and the world will have changing and unpredictable weather. As such, the world will not be conducive to human life. Rationality Rational consumers tend to spend their money wisely. Rational consumers consider the satisfaction they get from what they spend. Therefore, they will try to utilize their income to suit their needs. Rational consumers have to utilize their income depending on their basic needs. The extra amount of cash sis spent on other needs that make their life better. Rational behavior in consumers is depicted by the urge to make prudent decisions in concern to spending. Rational consumers make decisions in relation to their personal desires to attain the uttermost amount of satisfaction from products and services. Rational consumers do not make haphazard decisions when they have limited resources. As such, they will have to evaluate all the options they have. After evaluating all the options, they have to make the best choice. This leads to satisfactory results as they are able to get what is pleasant according to their heartfelt desires. This leaves no room for swift and hurried decisions as a person is not likely to choose the best when they make hurried decisions. The rational behavior of consumers is explicitly expressed when they prefer to get more of the products as compared to a lesser percentage of the same products (Barr, 143). Therefore, rational consumers will employ economic analysis in ensuring they get the best utility from products and services that are offe4red in the market. For instance, a rational consumer will prefer to buy a larger amount of the products and services that are in the market to accrue a larger share. Though the amount will be higher than the precedent amount that should be spent, the consumer receives more utility as opposed to the other consumers. This brings the issue of economies of large scale buying. Rational consumers prefer to buy products and services in large quantities than buying small amounts of the products multiple times. For instance, buying a bag of sugar is cheaper than buying portions of the bag of sugar over time. Using such criterion in purchasing products ensures the rational consumers save a substantial amount of money that could be used in other demanding tasks. Most people are considered rational consumers, except when the products and services that are offered do not reflect the same. For instance, some services can never be bought or transferred in bulk. A perfect example is visiting a barber for a shave. When a person visits a barber, there is a limited service that the consumer expects. Therefore, there is no issue in making bulk purchases of such services. Public administrators should consider advising people on becoming rational consumers. When the public denotes the issue of taking rational decisions on their spending, it is the best approach in increasing the spending in an economy. For instance, when public administrators enhance rational spending in the economy, the workers are likely to give the best in the economy as far as spending is concerned. The public will spend wisely according to the needs. In many instances, the economy gains when the rational consumers are spending wisely. Consider a scenario where the public workers have a salary increase. When the supply of money increases, rational consumers will make wise decisions accordingly (Barr, 234). For instance, when there is an increase in the salaries, the consumers will look for a better utility than the previous one. In such a situation, the consumers will improve their spending to fit their new status. The money supply means there is an increase in the disposable amount in the consumers. As such, they will increase their utility in spending. They will increase the bulk buying according to the increase in their amounts of salary. Increasing the spending is the most appropriate take for the economy. The economy will be receiving greater amounts of cash that is circulating. This increases the growth rate of the money in the economy as it is gaining value with each circulation. Money supply Demand for products The figure above concretely shows the change in the economy when rational consumers are given a pay rise. When consumers get pay hike, their disposable amount increases. Since they have to make the best choice in their spending, there is a need to make the best choice in the market. Rational consumers have a notion that the best products in the market have a slightly higher price. As such, they will decide to use products that have a reasonable price. This figure shows that their demand will increase in proportion to the increase in the supply of money. Therefore, administrators should increase the amount of disposable cash in the consumers to trigger spending. When spending will increase, the economy will substantially gain and make a significant improvement (Barr, 178). However, when the public administrators reduce the salaries of the public, there is a significant change in the consumer behavior. First, the rational consumers will make wise decision in relation to their spending. They will minimize their spending to conform to the skewed budget. Therefore, the spending in the economy will drastically reduce. As a matter of fact, the economy will be losing since the money circulation in the economy is skewed to the budgets of the public workers. Social welfare policy The social welfare policy is controversial in that it deems to assist all the people in the society. This is done by the government talking some of the amounts of cash garnered from the rich people in the society to fend for the needs of the poor people in the society. To the poor people, this is a prudent approach in taking care of the welfare. The poor people are given grants and other economic assistance to make their life better. For instance, the unprivileged people in the society are given house rent, grants for their education and are sometimes supplied with foodstuff. This makes their life better and they live happily. However, the rich people are on the receiving end. To begin with, the rich people have to pay their taxes and they have to do this promptly. In addition to their taxes, the rich people in the society have to chip in and pay more towards the welfare f the other people. This is an unfair approach to making the lived s of other people better. The social welfare is controversial in a number of ways. First, it is incepted in the society to bring equity among the members of the society. However, the strategy in itself is self-defeating. First, the poor people have no contributions towards the welfare, yet they are the ones that should benefit. Secondly, the rich people are obligated to produce a large percentage of the amounts that will be used in the social welfare. As such, they are overtaxed. This creates a notion where the rich people have to make payments in ensuring the poor people in the society are living in a better place. Therefore, the mandate of ensuring the poor people is extended to the rich people in the society. They are paying for the living of the poor people in the society. In a free world, this should not be the case. Each person should be liable for any expenses in ensuring they are living in a better place and living a better life (Barr, 279). Thirdly, the world of today is a capitalist economy where each person has to cater for their expenses. Therefore, people are in a free capitalist world where each person struggles to live a better life. However, the social welfare ensures that some people are not struggling to live a better life. Such people only sit and wait for the government grants and the financial gains. This creates a scenario where some people are struggling while the others are waiting to get what others have endlessly worked for. This creates a controversial scenario where the poor people are helped yet they do not show any form of appreciation. The social welfare is controversial approach to making the life of other people better. First, the poor people are not working to make a better living. Therefore, they will sit back and wait for the grants from the governing bodies. This reduces their quest to look for an employment opportunity. As such, the people that are legible for grants will not make an opportunity to look for employment. Secondly, the people that receive social welfare will not make any effort to attain better learning. The people are in their comfort zone since the government and other governing bodies are providing the basic needs (Barr, 312). Therefore, their struggle for education is pointless. Lastly, the social welfare is controversial in that some people that are not legible for these services end up receiving them. Some people fake their legibility and attain the right to access such services. Therefore, the resources are wasted on able-bodied people rather than spending the resources of the needy. Work Cited Barr, Nicholas. Economics of the Welfare State. Oxford: Oxford University Press. Print. Read More