Chapter 16.2, Problem 3R

To determine

To ascertain the government regulates negative externalities of production and with examples.

Explanation of Solution

A negative externality is a loss which a third party is experiencing as a result of transaction in an economy. Producer and customer are involved in a transaction, and other parties include any indirectly affected individual, organization, property owner or resource. Government may play a role in limiting negative externalities by taxing products when the spillover costs are produced by their output. This taxation does raise the cost of manufacturing these goods effectively. Such taxation, instead, seeks to make the manufacturer responsible for the entire output expense.

The government can put a limit on the ranges of emissions a factory can create by tradable permits issuing, in the case of emissions.

Economics Concept Introduction

Introduction: An externality is a loss or benefit induced by a producer that is not paid or earned financially by that producer. An externality can affect society positively or also negatively and can result either from the manufacturing or use of goods and services.