Example Of Negative Externality

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The major economic problem in the article above is negative externalities. An externality occurs when the production or consumption of a good or service has an effect upon a third party. When the effect is harmful, then the concept of a negative externality comes in. Existence of externalities of consumption makes marginal social costs not equal to marginal social benefits, hence causing a market failure .The main cause to the negative externality in the article is consumption of tobacco products such as cigarettes, which are demerit goods and thus a good example of a negative externality. A demerit good is a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers. Demerit goods are generally considered as bad both for people who consume them and for society as a whole, and thus most governments would like to see them consumed to a lesser degree, or not at all.

The diagram above shows cigarette consumption as a negative externality. The distance Q to Q1, represents overconsumption of cigarettes by the market and the resulting welfare loss to society.
With all the negative health issues attributed to usage of tobacco products, it is expected for a ministry such as that of health to step up to put measures to reduce the number of tobacco consumers, as it is a lot in this particular area due to low taxation on this negative externality. There are quite a number of

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