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A)'If property rights are not clearly defined, externalities such as pollution probably cause market failure'-explain b)'Since most government attempts to correct market failure fail, should governments leave the allocation of resources to market forces' - Essay Example

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The problem with negative externalities such as in the case pollution is that this type of negative externality is often left undefined. For instance: Given that air pollution is not well defined, a steel…
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A)If property rights are not clearly defined, externalities such as pollution probably cause market failure-explain b)Since most government attempts to correct market failure fail, should governments leave the allocation of resources to market forces
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Extract of sample "A)'If property rights are not clearly defined, externalities such as pollution probably cause market failure'-explain b)'Since most government attempts to correct market failure fail, should governments leave the allocation of resources to market forces'"

Download file to see previous pages Often times a market failure would arise for the fact that there are quite a lot of manufacturing companies that produces not only a wide-range of products but also negative externalities like air or water pollution. If pollution will not be well defined under the property rights law, these manufacturing companies that produce air or water pollution will continuously produce negative externalities rather than exerting extra effort in controlling these negative externalities. In the end, it means that those people who do not engage themselves in buying or selling of the manufactured products will
Given that a steel manufacturing company will be strictly required to compensate for the negative externalities the plant produces, the cost of these negative externalities would most likely be included in the operational cost of manufacturing steel. As a result increasing the operational cost of manufacturing steel, the market price of steel would also increase. Therefore, demand for steel would eventually decrease until the point of equilibrium is met. As soon as the demand for steel decreases, supply for steel will also decrease. As a result, the decrease the production of steel would result to a decrease in negative externalities such as air or water pollution.
In other words, the economic implications of externalities require those individuals or firms that produce negative externality to pay for the cost they have imposed on those individuals who live around the area. Given that these externalities is well defined, inventors will be forced to innovate new machines that will emit less or zero negative externalities in order to drive other manufacturers out of the industry.
Let us take a closer look in automobile industry. Most of the old cars that has diesel engine are more likely to emit more air pollution as compared to cars that uses gasoline. Given that the government would impose higher taxes on ...Download file to see next pagesRead More
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