Negative Externality Case Study
Negative Externality Case Study
Economics for Business
Central Queensland University “CQU”
Table of Contents
Question 1: Negative Externalities 4
1.1 Defition 4
1.2 Examples 4
1.3 Reasons for Government Intervention 4
1.4 Possible Solutions 5
Question 2: Case Study of Externaities 5
2.1 Garbage disposal service 5
2.2 Market structure 6
2.3 Market structure of the system 7
2.4 Negative externality situation 10
2.4 Government intervention 10
Question 3: Suggestion 11
3.1 Problem of of Volume-rate garbage disposal system 11
3.2 Deposit refund system 12
Summary & Conclusion Error: Reference source not found
Question: 1. Negative externality
1.1. Definition
In economics, an externality is defined as the uncompensated impact of one person’s actions on the well-being of a bystander (Patel 2004, p379). The uncompensated impact on the bystander may be either adverse or beneficial. If there is a beneficial impact, it is called a positive externality. On the other hand, if it is negative, it is called a negative externality. Regardless of which externality occurs, externalities can cause market failure (Layton, 2012).
1.2. Examples
Negative externalities come in many varieties and governments intervene in the market to solve a variety of negative externalities. Here are some examples.
A manufacturing company emits pollution during production. It is a negative externality because it creates smog that other people have to breathe. In order to stop the citizens breathe the smog, the government will legislate emission standards for factory or regulate the production.
Floor noise from an upstairs apartment creates a negative externality because downstairs neighbors are disturbed by the noise. Therefore, governments raise the standard of sound insulation to reduce the noise or force the upstairs neighbor to take precautions to prevent their children from running in the house.
When people drive a car on road, they increase accident risks and congestion costs on
Economics for Business
Central Queensland University “CQU”
Table of Contents
Question 1: Negative Externalities 4
1.1 Defition 4
1.2 Examples 4
1.3 Reasons for Government Intervention 4
1.4 Possible Solutions 5
Question 2: Case Study of Externaities 5
2.1 Garbage disposal service 5
2.2 Market structure 6
2.3 Market structure of the system 7
2.4 Negative externality situation 10
2.4 Government intervention 10
Question 3: Suggestion 11
3.1 Problem of of Volume-rate garbage disposal system 11
3.2 Deposit refund system 12
Summary & Conclusion Error: Reference source not found
Question: 1. Negative externality
1.1. Definition
In economics, an externality is defined as the uncompensated impact of one person’s actions on the well-being of a bystander (Patel 2004, p379). The uncompensated impact on the bystander may be either adverse or beneficial. If there is a beneficial impact, it is called a positive externality. On the other hand, if it is negative, it is called a negative externality. Regardless of which externality occurs, externalities can cause market failure (Layton, 2012).
1.2. Examples
Negative externalities come in many varieties and governments intervene in the market to solve a variety of negative externalities. Here are some examples.
A manufacturing company emits pollution during production. It is a negative externality because it creates smog that other people have to breathe. In order to stop the citizens breathe the smog, the government will legislate emission standards for factory or regulate the production.
Floor noise from an upstairs apartment creates a negative externality because downstairs neighbors are disturbed by the noise. Therefore, governments raise the standard of sound insulation to reduce the noise or force the upstairs neighbor to take precautions to prevent their children from running in the house.
When people drive a car on road, they increase accident risks and congestion costs on