Negative Externalities

What economic concept is illustrated when the paper factory does not include the cost of environmental damage in its production costs?

• Negative externalities

• Tragedy of the commons

• Private costs

• Supply and demand equilibrium

What was the consequence of the paper factory's pollution on the lake's ecosystem?

• Increased fish population

• More sunlight

• Cleaner water

• A lot of fish dying

What are the ways to combat negative externalities mentioned in the text?

• Ignoring the problem

• Closing factories, banning fishing, and stopping hotel construction

• Only through government intervention

• Public awareness, assigning property rights, internalization, regulation and fines

How does assigning property rights help in combating negative externalities, as mentioned in the text?

• It increases the number of public protests

• It makes no difference in addressing externalities

• It allows for direct regulation of resources

• It encourages responsible use and management of resources

What is the likely impact on the demand for public transportation if the government imposes a high tax on private car ownership due to its environmental impact?

• Demand for public transportation decreases

• Demand for public transportation remains the same

• Demand for public transportation increases

• Public transportation becomes less efficient

Label correctly on the diagram:

a

b

c

d

e

MPC

Price of steel

MSB

Welfare Loss

MSC

The government intervene to try to "internalise the externality" - to make the steel producer pay for external costs. If they impose a tax on the producer, draw a line from MPC showing the effect of the tax. Call it MPC+tax. Show it removing the welfare loss.

Circle the actual equilibrium point that shows the steel firm overproducing as it is not considering its cost on society.

Which answers below are included in the yellow "welfare loss" triangle?

• Creation of jobs, economic growth

• factory pollution, effect on local biodiversity

• staff training, pollution, cleaner local area

• costs of the land, labour, capital included in production

Name the private costs and the external costs for a firm producing steel.

Groups:

(a) Private Costs

,

(b) External Costs

• Fossil Fuel Pollution

• Health of Sick Workers

• Cost of Factory Machinery

• Biodiversity Damage from Smoke

• Cost of the Factory Land

• Workers Payment