Negative Externalities Of Production

1) Explain the concept of negative awayities of production. (10 marks)
2) Evaluate three policies that whitethorn be used by government to reduce immaterial lives of production. (15 marks)

Negative externalities argon adverse effects of a production of a good or service on a third party. Many causes refer to environmental problems, such(prenominal) as pollution, deforestation, and congestion. For instance, if a factory was to emit greenhouses gases, this would contri alonee to style pollution, and if they were to dispose of their wastes in the rivers, this would be water pollution. An early(a) example of a negative externality of production is deforestation, which is when trees or other plants are being chopped down in assemble to use the timber for wooden products, such as furniture. When this occurs, the blind drunk is required to pay for the comprise of production plus the cost to the community. In other words, the firm has external costs, in surplus to their own private costs. The marginal amicable costs greater than the marginal private costs because the marginal social cost (multiple sclerosis) is the marginal private costs (MPC) and the external costs (MEC) combined. Its equation would be:
MSC=MPC+MEC
This equation acts as the production curve, temporary hookup the marginal social benefits equation acts as the consumption curve.



If the equal theory is used for the social benefits, we would derive that the marginal social benefits (MSB) is equal to the marginal private benefits (MPB) plus the marginal external benefits (MEB).
MSB=MPB+MEB
In set for us to focus on simply one externality, assumptions need to be made. We assume that in that location are no positive externalities of production and there are no positive or negative externalities of consumption. This means that the equations to a higher place would be:

MSB=MPB+MEB
MSB=MPB+0
MSB=MPB
MSC=MPC+MEC
MSC>MPC

While drawing the graph, we know that in order for there to be an efficient allocation of resources, the MSC has to equal the MSB, but because it is left to...If you want to get a full essay, order it on our website: Orderessay



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