Understanding Negative Externalities in Economic Activity

Negative externalities refer to the additional costs towards third parties from the economic activity is activity that people are affected indirectly, the cause is an incremental cost by the price of the market did not have to share the costs incurred by the other parties and make the economic system is the quantity of goods and services produced more than expected. Producer and consumer are the first and second parties do not affected. Many negative externalities are about the environmental consequences of production and use. Most of a negative externality is waste and pollution. For example, a mine producing firm might release air pollution. While the industry has to pay for materials equipment and labor. People who living around or near

This leads to over-production and market failure if producers do not take into account the externalities. In other words, if they have small transactions costs and someone owns the rights to the air around the mining company, they will increase the efficient outcome. For example, if the mining company owns the rights, then the people that live around the company will be willing to pay the mining company to stop produce up to the cost that they are incurring from health care, medical, appeal of the air. This amount that they are willing to pay for opportunity cost for the mining company if they produce. So, they will reduce production to the efficient point. In addition, if the air is people own, then the mining company should to pay them that same amount for the right to produce. So, the negative externality is directly increased to the mining company's marginal cost. In fact, first, when marginal private costs more than marginal social benefit it is

The tax proceeds collected from the public to develop a country with two types of direct tax are a tax on people with income from tax and occupation of business trade, services and industry and indirect tax is a tax on people when they buy goods and services that are referred to another that the value added tax (VAT), which all people need to be taxable because the benefits of the tax will come back to reward people. Environmental taxes have had a clear positive impact on the environment in community. Environmental taxation has a many type. The advantages of taxation are to finance government expenditure. Governments will use different kinds of taxes and vary the tax rates. Taxes can make consumer or producer pay social cost of goods and services. Corrective tax can make the producer reduce amount of the negative externality. This adds to the producers marginal cost and will cause them to decrease output. For the benefit of a corrective tax is the provision of an incentive for companies to reduce activities. In fact, first point is without considered about negative externalities. A corrective tax increase marginal private cost by an amount equal to the marginal external cost and results in the efficient annual output. The tax can represent the total external cost of efficient output. This area equal to the external cost at optimal point. The tax allows net