The paper "Explanation of Negative Externalities" is a great example of a report on macro and microeconomics. As a matter of fact, negative externalities are defined as costs of marketing, consuming, or producing products that are not borne by the consumers or producers of the products (Hackett 2011). In other words, negative externalities are costs that third parties suffer due to economic transactions. In such a transaction, the consumer and producer turns to be the first as well as the second parties, whereas the third parties comprise of any organization, individual, resource, or property owner that is affected indirectly (Hackett 2011).
Also, negative externalities are known as external costs. Negative externalities also referred to as social costs reasons for their occurrence is that those expenses are normally never included in computing the production costs. Generally, production decisions are grounded on fiscal data and the majority of social costs are not calculated that way. For instance, the time that an organization makes a decision of opening up certain new factories, it would never put into account the costs that the residents would accrue through drinking water from the river that the factory would have polluted.
Resulting in that, a product that should not be produced as a result of total expenses exceeding returns is made as a result of not considering the social returns. Put in another way, the production costs embody marginal, private, or individual costs (Hackett 2011). The societal marginal costs are higher than the private marginal costs that also capture the actual negative externalities’ costs. Owing to that, manufacturers overrate the ideal amount of the goods to manufacture.
In the case of negative externalities, government intervention might become necessary for the achievement of economic efficiency the moment that the externalities affect huge numbers of individuals or the time that interests of the community are required more than the negative externalities at hand. In point of fact, there are several ways of correcting the negative externalities which are coupled by their pros and cons. The first way of correcting negative externalities is direct controls (Hackett 2011). In this scenario, the direct method of reducing negative externalities from a particular activity is through passing legislation that limits that specific activity.
ReferencesHackett, S, C, 2011, Environmental and natural resources economics: theory, policy, and the sustainable society. Armonk, NY: M.E Sharpe.