Question

Please I need today answer for This question and it is very important and I need solution for this issue with all the details , and help me with all the details.Please write your answer to me by typing, not by handwriting, so that I can read and understand your answer clearly.BR/Hassan

Externalities :

a)Define a negative production externality.

b) Why do markets not always manage to solve the problem of externalities on their own?

c) Under which conditions does smoking lead to externalities in terms of health care costs and workplace productivity? What type of externality is smoking?

Answer 1

a) Negative productive externality cause social welfare to fall and negatively effects the people of society by reducing their social welfare. Assume if a firm in the market dumps their extract in the river nearby which is the only source of drinking water for people living thereby. As water gets not able to drink due to extract disposed by firm. This is a negative externality for society where it gives profit only to firm effects negatively to everyone else in the society.

b) Some firms in the market dumps their waste material in the resources which society use for daily purposes. Assume there are 10 firm in the market and 5 of them have installed filter in their manufacturing plants which do not effects society while other 5 do not have any filter installed, due to which waste material is directly disposed in the river nearby. As 5 of them are spending money to for societal welfare while other 5 are not which becomes the reason that market alone is not able to solve this problem by their own and government comes into place. Government puts fine on those 5 firms who do not filters installed equals to or more than the loss of societal welfare due to extraction.

c) Smoking in long term leads to lungs cancer of the smoker while the person who smokes does not only effects themselves but those who do not smoke are also effected. Non smoker also gets to inhale some pollution exhaled by smokers. This raises the societal health care cost and reduce their productivity. Smoking is negative externality as it relaxes the individual who smokes but leaves harmful effect on others or non smokers.