The paper "Money for Nothing: Exploiting Negative Externalities" is a great example of an assignment on macro and microeconomics. Negative externalities refer to unfortunate events or costs that third parties incur as a result of certain economic activity in the society (Deng, & Pekec, 2011 p. 13). Sometimes an economic activity may have spillover on people that are not in any way involved. A good example is where a factory emits carbon to the air thus affecting the people residing in its vicinity. Even those people who are not consumers of its products pay the cost of unhealthy air due to such production.
It happens as a result of shared resources such as air which no one can claim ownership (Benito, Ezcurra, & Eraso, 2014, p. 46). The society cannot prevent the factory from producing goods even if the product is harmful to its livelihood. To address these externalities, the government plays a key role in protecting the welfare of the entire society. Although the government appreciates the role of factories in economic development, it may opt to discourage such establishment. It happens when the negative externalities have extreme effects thus incurring costs that are exceeding benefits (Deng, & Pekec, 2011 p. 24).
In such a case, if the cost associated with poor health due to pollution is much higher than the benefits of factory existence, then the government may use legal means to eliminate that factory. In this way, the government is said to have intervened with the aim of addressing the issue of pollution and third party concerns. There are several ways in which the government may correct the negative externalities in society. One, the government may decide to introduce heavy taxes on goods that are produced by such factories.
Obviously, when taxes are high, such cost is pushed to the final consumer by increasing the cost of products in the market. Such goods become unaffordable thus affecting their sales (Kotler, 2011, p. 47). Consequently, the production cost becomes unbearable thus discouraging the production of a commodity. In this way, the government helps society by eliminating potential health risks. Again, the government may introduce laws that control the establishment of such factories in society. The method works well where goods produced have high demand and their sales may not be affected by heavy taxation.
The government may opt to ban such an establishment with the aim of saving society from negative externalities.
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Deng, C., & Pekec, S. (2011, June). Money for nothing: exploiting negative externalities. In Proceedings of the 12th ACM conference on Electronic commerce (pp. 361-370). ACM.
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