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6.03 How do Externalities Affect You?

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Mahdi Musleem

on 13 November 2014

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Transcript of 6.03 How do Externalities Affect You?

6.03 How do Externalities Affect You?
By: Mahdi Musleem
Air pollution
Air pollution is an issue that we face in the world today. Unfortunately it has been increasing rather than decreasing which has led to an increase in diseases, rising temperatures (leading to an increasing rate and effect of global warming.)
Government
A positive externality for the government enforcing the pollution solutions would be the decrease in healthcare costs incurred due to issues stemmed from air pollution.

A negative externality for the government would be a slow economy and less tax generated income.

The government should be incentivized to put forward the solutions to air pollution as in the short and long terms, it truly benefits all our well being.
Thank you
There are many solutions to air pollution. The first solution is to tax businesses that pollute and even fine them for going over certain limits such as producing three tons of carbon dioxide rather than the limit of two. A positive externality of this solution would be the increase in the quality of air in that society. A negative externality may be the loss of jobs due to the restriction on the production capabilities of the business.
Businesses
A positive externality for businesses who have to cut back production due to pollution would be a reduction in costs such as taxes and operation of the capital (machines and labor).

A negative externality would be a loss of business and a reduction in profits.

The incentive businesses would have to cut back air pollution would be to avoid fines and just trouble in general from the government.

A final solution is to increase tax on excise goods such as coal and cigarettes. A positive externality of this is a reduction in heart attacks and lung cancer caused by cigarettes, which in turn would reduce healthcare costs for the government. A negative externality is the forgone opportunity for people to indulge in the goods they wish to such as cigarettes or coal lit barbeques.
A second solution would be to increase tax on gasoline and un environmentally friendly cars. A positive externality of this would not only be the reduction in carbon monoxide released into the air, but also a reduction in traffic and car accidents. However, a negative externality is that it may reduce the will of the people in society to work since everything is so expensive.
Households
A positive externality on households due to solutions of air pollution would be a reduction in healthcare costs and illnesses and an increase in well-being due to lower pollution levels.

A negative externality would be a loss in jobs and a reduction in household income as well as purchasing power.

The incentive for households to follow along with the solutions would be a healthier and better quality of life.
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