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The Impact Of Unregulated Business Activity

Examples

Government Actions

The government often partially subsidizes local carnivals, as well as encourages farmers to use techniques that make the local environment more attractive.

Making polluters pay is often used to discourage pollution-generating activities

- Required at a local, national and international level

- Makes sure that a fairer system exists in order to prevent, or at least reduce, negative externalities

- Makes sure businesses are held accountable for their negative externalities

- Encourages activities with positive externalities

Examples

Positive Externalities

Malls, shops and restaurants in busy cities create attractive sites and encourage visitors

A newly opened local store provides employment opportunities for the community

Greenhouse gas production and noise pollution from a newly opened airport

Exploitation - businesses paying low wages (or using child labour) in order to maximise their profits

These are the favourable effects of the business decision.

Examples

John opens an organic fruit store

:

Externality

Negative Externalitites

Costs:

Private: The financial costs (paying shop assistants)

Social: Traffic congestion from people buying the products

Benefits:

Private: the revenues from customers

Social: Employment available

Promotes eco-friendly living

Extra income for other local shopkeepers

These are the negative effects of the business decision

Costs & Benefits

Owners hope that the costs of setting up and running a business will bring them benefits:

Private: to themselves

Social: to their customers and others in the community

is the result of business activity that is not taken into account in normal business decision making

is the external, or "outside" effect of a decision

Activity

For the following pictures and descriptions please come up with at least 2 positive externalities and 2 negative externalities

A brand-new airport has just opened close to the city.

The council has decided to make it the main airport of the country as it is the largest and most modern.

Linda and Jeff have opened a laundry service.

They offer to wash clothes and blankets for local people and only charge a low price.

Their shop is located near the local park where there are several ponds and lakes.

A large coffee shop franchise, named Charlie's Coffee, has opened a shop in the city centre.

As this is a popular area, there is a local coffee shop located close to it.

Example

A new local fruit store may be convenient for a lot of people, but it may also put another one nearby out of business

Learning Objectives

  • Show an awareness of how business decisions have an impact on others (society, environment and people)

  • Understand and be able to differentiate between positive and negative externalities

  • Use examples to show how business decisions create externalities
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