Journal 5-HSPM 412

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University of South Carolina *

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412

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Economics

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Feb 20, 2024

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According to the article, Polluting Farmers Should Pay, algal blooms in areas around the United States, such as the Gulf of Mexico, Toledo, and Florida, contain toxins that can make us sick after swimming or consuming tainted fish, kill pets and livestock, and raise treatment costs for safe drinking water (Kling, 2019). These toxins are created from nitrogen and phosphorous pollution, which the bulk of it comes from agricultural fertilizer and manure runoff (Kling, 2019). The U.S. Environmental Protection Agency has also reported that 150,000 miles of streams and nearly five million acres of lakes across the country remain impaired from nutrients (Kling, 2019). The specific market discussed in the article identifies the seller as the farmers, the market good as the crops they are producing, and the buyer as the people in the grocery stores or farmers markets who purchase the produce. However, the issues raised in this article relate to a negative externality the affects a third party. The third party is the people who swim in or consume the water that is tainted with nitrogen and phosphorous poison caused by manure runoff that the farmers use to fertilize their crops. Based on this information I would expect this negative externality to lead to overconsumption of the market good because the social costs of fertilizer use will exceed the private costs, which will lead private markets to produce more fertilizer than is socially optimal (Hair, lecture 13). There are graphical representations for externalities. When referring to negative externalities, the private supply curve reflects the price faced by private consumers and the social supply curve reflects the point of view of a hypothetical social planner who weighs the social benefits against social costs (Hair, lecture 13). The third-party effects caused by nitrogen and phosphorous pollution can be modeled by a social supply curve above a private supply curve. This graph capturers the additional social costs of the fertilizer use. Because the social costs of fertilizer use exceed the private costs, a private market will produce more fertilizer use than is socially optimal (Hair, lecture 13). Pigouvian taxes imposed on, in this case, fertilizer would increase private costs in order to discourage consumption of goods with negative externalities. In graphical terms, the optimal Pigouvian tax perfectly aligns the private and social supply curves. (Hair, lecture 13). A Pigouvian tax will “internalize” the negative externality so that people treat social costs as if they were private costs, and the difference between these social and private costs are exactly equal to the negative externality, to practically cancel it out (Hair, lecture 13). These Pigouvian taxes can be utilized to help the market reach a socially desirable state. References Hair, Nicole. “MODULE 5-LECTURE13-Health Externalities.” Health Economics, August 29, 2022, University of South Carolina. Microsoft PowerPoint presentation. Kling, Catherine. “Polluting Farmers Should Pay.” The New York Times , The New York Times, 25 Aug. 2019, https://www.nytimes.com/2019/08/25/opinion/water-quality- agriculture.html.

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