Essays on Externalities and Market Structure Report

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The paper "Externalities and Market Structure" is a great example of a report on macro and microeconomics. Externalities are a common occurrence in many economic systems. An externality is simply the spillover effects that arise from the production or the consumption of a certain good or service. Usually, no compensation is made for the externality (Ater 2008). Externalities have been known to cause market failure in the event that the price mechanism in that particular market does not fully account for costs incurred socially or for the benefits attained.

An externality is either said to be a positive one or a negative one (Bithas 2011). A negative externality is said to occur in the market when the firm or individual responsible for making a particular decision is not fully accountable for the cost incurred or associated with that decision. If for example, good in the market is having a negative externality, then the cost imposed on society is greater than the cost the individual paying for the goodwill incurs (Ater 2008). A negative externality always amounts to inefficiencies in the market or even failure unless mechanisms are put in place to prevent such (Harris 2003).

This occurs mainly because the consumers purchasing the good decisions at the point where their marginal costs will equal their marginal benefits and as such, they do not put into consideration the cost of the negative externality. In the case of a market system that is not regulated, and a negative externality occurs the producers take no charge of costs incurred but rather, they pass the burden to society (Haviv and Ritov 1998). An example of a negative externality is pollution.

For example, a chemical producing company will let out poisonous emissions into the atmosphere. The firm will only incur costs associated with the production of the chemicals, but the people living around that company will pay for the negative externality. This is because the emissions will make them sick, and they will have to incur expenses in footing the medical bills (Hillman 2009).


Ater, I. (2008). Essays on externalities and market structure.

Bithas, K. (2011). Sustainability And Externalities: Is The Internalization Of Externalities A Sufficient Condition For Sustainability? Ecological Economics, 70(10), 1703-1706.

Boyes, W. J., & Melvin, M. (2008). Economics. Boston [u.a.: Houghton Mifflin.

Etro, F. (2009). Endogenous market structures and the macroeconomy. Dordrecht: Springer.

Frank, R. H., Bernanke, B., & Frank, R. H. (2007). Principles of microeconomics. Boston: McGraw-Hill/Irwin.

Harris, L. (2003). Trading and exchanges: Market microstructure for practitioners. Oxford [u.a.: Oxford Univ. Press.

Haviv, M., & Ritov, Y. (1998). Externalities, Tangible Externalities, and Queue Disciplines. Management Science, 44(6), 850-858.

Heung, S. N. S. (2005). Economic explanation: Selected papers of Steven N.S. Cheung = Zhang Wu Chang yen yu lun wen xuan. Hong Kong: Arcadia Press.

Hillman, A. L. (2009). Public finance and public policy: Responsibilities and limitations of government. Cambridge: Cambridge University Press.

Mankiw, N. G. (2004). Principles of microeconomics. Mason, Ohio: Thomson/South-Western.

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