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By the end of this section, you will be able to:

  • Explain and give examples of positive and negative externalities
  • Identify equilibrium price and quantity
  • Evaluate how firms can contribute to market failure

From 1970 to 2012, the U.S. population increased by one-third and the size of the U.S. economy more than doubled. Since the 1970s, however, the United States, using a variety of anti-pollution policies, has made genuine progress against a number of pollutants. [link] lists the change in carbon dioxide emissions by users of energy (from residential to industrial) according to the U.S. Energy Information Administration (EIA). The table shows that emissions of certain key air pollutants declined substantially from 2007 to 2012; they dropped 730 million metric tons (MMT) a year—a 12% reduction. This seems to indicate that progress has been made in the United States in reducing overall carbon dioxide emissions, which cause greenhouse gases.

(Source: EIA Monthly Energy Review)
U.s. carbon dioxide (co 2 ) emissions from fossil fuels consumed 2007–2012, million metric tons (mmt) per year
Primary Fossil Fuels Purchased Electric Power Total Primary Fossil Fuels
End-use Sector Coal Petroleum Natural Gas
Residential (0) (14) (31) (134) (179)
Commercial (2) (2) (7) (126) (136)
Industrial (40) (62) 31 (118) (191)
Transportation 0 (228) 5 (1) (224)
Power (464) (36) (122) - -
Change 2007–2012 (508) (342) 121 (378) (730)

Despite the gradual reduction in emissions from fossil fuels, many important environmental issues remain. Along with the still high levels of air and water pollution, other issues include hazardous waste disposal, destruction of wetlands and other wildlife habitats, and the impact on human health from pollution.

Externalities

Private markets , such as the cell phone industry, offer an efficient way to put buyers and sellers together and determine what goods are produced, how they are produced, and who gets them. The principle that voluntary exchange benefits both buyers and sellers is a fundamental building block of the economic way of thinking. But what happens when a voluntary exchange affects a third party who is neither the buyer nor the seller?

As an example, consider a concert producer who wants to build an outdoor arena that will host country music concerts a half-mile from your neighborhood. You will be able to hear these outdoor concerts while sitting on your back porch—or perhaps even in your dining room. In this case, the sellers and buyers of concert tickets may both be quite satisfied with their voluntary exchange, but you have no voice in their market transaction. The effect of a market exchange on a third party who is outside or “external” to the exchange is called an externality    . Because externalities that occur in market transactions affect other parties beyond those involved, they are sometimes called spillovers .

Externalities can be negative or positive. If you hate country music, then having it waft into your house every night would be a negative externality    . If you love country music, then what amounts to a series of free concerts would be a positive externality    .

Questions & Answers

what are the causes of scarcity
Herieth Reply
meaning of economc system
Herieth
what are the principle of economics
Lumen Reply
The question is not straight
Muafue
How do you manage the exchange rate between local and foreign currency
Florence
How does the exchange rate impact production in developing countries
Florence
The appreciation promotes imports substitutions production but devaluation promotes exportable production .As LDCs have unelasticity production factors the devaluation would likely promote the nontradeable goods sector.
wael
what if there's no intervention in an Economy where there is increase in money supply
Florence
What is economic problem?
benard Reply
economic problem basicaly three types whom to produce, what to produce , How to produce you have called choice of commodity also it called central problem of economic
Shad
basic theory about economics
Areeba Reply
what is economics? Define
Shad Reply
A science that studies about human behavior as a relationship between ends and scarce means that have alternative uses,all other things being equal
Oduro
the management and effective use of limited resources to acheive maximum satisfaction of human material wants
Lesedi
is the study of mankind in ordinary business of life by marshall
Herieth
what is decision making
patience Reply
Q=6L-0.5L^2 where Qis no. of car washed and L is the no. of labours. P of each wash is 500 rs and wage =500/labour .as a rational person how many labour will we hire.
Lokesh Reply
given Q¢y=500-0.5Py-2.3pw+0.2Px+0.000001Pz+0.0037i provided that ;Py=30000:Qy=15000; income=60000 1•find price elasticity 2•income elasticity of demand 3•interpret your results 4•from income elasticity of demand what type of product would (y )be{luxury or necessity good}
Samson Reply
Price elasticity= dQd/dP * P/Q
The
PW is= what
The
determinants of demand
Tanka Reply
low of supply and demand
Arti
taste and preferences consumers income price of related goods number of buyers
Lesedi
how to e valuate return to scale?
Abdulkerim Reply
pls can you make all the defination to be in an orderly manner in demand and supply
Fule Reply
Demand refers to the quantity of goods and services consumers are willing and able to purchase at each conceivable price at a given time period.
Abraham
supply is the quantity of goods producers are willing and able to make available for sale at each possible price in a given time
Lesedi
please what is decision and choice making and how relevant is the concept of choice to household and government
Aisha Reply
choice can help you go in for more cheaper good for example you go to a store to buy chocolate you notice it cost 100 then you decide to go to another you see that chocolate cost 75 so you decide or choose to buy were is more cheaper
Fule
choice also help you to manage your household is choosing good which are necessary
Fule
Processes to long run equilibrium under monopolistic competition
Keem Reply
Its the relationship between households and firm in economics
Nida Reply
please what is decision and choice making and how it is relevant to the concept of choice
Aisha
introductory of micro economic
Raj Reply

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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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