Negative Externalities Of Meat And Dairy Business

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As the global warming becomes a much more serious problem, scientists suggest to place a tax on meat and dairy to decrease greenhouse emission. They found that raising livestock is a large source of greenhouse emission. A successful tax on these good could cut the consumption of the meat and dairy and directly reduce the greenhouse emission and improve human health.

The meat and dairy business actually has negative externalities of production to the society. Negative externalities of productions arise when the production of a good spillover negative cost on a third party, which is often times the environment as whole. As mentioned in the article, Deforestation and methane emissions are the two negative consequences of the meat and dairy production. The production brings external costs to the society. In the graph below, the markets of meat and dairy are shown.

Meat and Dairy Market

The private cost of producing meat and dairy is the MPC Supply line, which is below the MSC. MSC represents the actual cost of production to society. From the graph, the MSC is greater than the MPC, which means the social cost is exceeding the private cost. Qe represents the actual output of meat and dairy. But the socially optimal level quantity is less than Qe,which means the resource are over-allocated towards the meat production. As a result, there is a welfare loss (gray area) in this free market. Producers need to pay more for their production and produce less quantity.


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