Please provide a apa style 1-2 paragraph response with work cited.
Is it always necessary for government to intervene and internalize the profit and the cost externalities? Illustrate your answer using a real world example.
Yes, it is necessary for Government to intervene and internalize the profit and the cost externalities.Benefit
Externality
is one where not all costs are compensated. In other words, the benefit or cost that affects a third party (one who did not choose to incur that cost or benefit).Cost externality- These are the cases where a producer does not pay all the costs generated by the product. This is an externality that enforces negative effect to the third party while the benefit externality is that which imposes positive effect to third party. It is always wise that the government comes up with a policy to internalize the cost and benefits to the main participants(Gilfoyle 43). The cost externalities many a times impose severe problems to the third party more than it does to the parties involved.
Externalities can cause harm to both the individual communities and to the government in one way or the other (Kidner 2012). So it should not be accepted.In order to compensate for negative externalities, the market as a whole has to reduce itsprofitsin order to repair the damage that was caused which decreases efficiency.Processing, manufacturing and mining industries for example causes air pollution through the gases they release on the atmosphere, water pollution through the wastes they channel to the nearby water bodies and noise pollution made by the running engines. The pollution like in this causes directly affect the people in the neighborhood.
The chemicals channeled in the water bodies may result to the poisoning and killing all the fish in the those waters, and perhaps the community residing along the water body solely depend on fishing ,this will directly affects the economy of that community and of the state by a given percentage which the community contributes. This pollution may also cause ill health the people in this community, if their lives depend on the consumption of that water which is polluted. In this case Externalities directly impact inefficiency because the production of goods is not efficient when costs are incurred due to damages.
Air pollution is a global effect. This pollution weakens the ozone layer, corrupted ozone layer, exposes the entire population to a dangerous UV (Ultra violet) lights, this one may result to serious diseases e.g. skin cancer. It may also reduce the propensity to job by the people within the affected parameters hence reduces the taxes the government would have collected from these people, if all could show up and work.
Noise from such industries may also reduces the concentration of the laborers who are working within a given area which is affected,(McGraw-Hill's 500 )
For example the people who lives near airport always get disrupted by the noises from the airplanes.(Labor is never 100% but 95%),where there is noise pollution, the workers productivity is highly affected, this reduces the general output which in turn reduces the profit made by this firms, this too reduces the government taxes.,
Positive externality, Example when a group of individual in a society pays for the security services and some does not, security personnel can not only guard the people who paid for the services but must guard the whole society. When there are joyrides, then efficiency also decreases because potential money earned is lost on non-paying third parties. In order to maximize economic efficiency, regulations are needed to reduce market failures and imperfections, like internalizing externalities. When market imperfections exist, the efficiency of the market also declines.
Works cited
Gilfoyle, Timothy J.A Pickpocket's Tale: The Underworld of Nineteenth-Century New York. New York: W.W. Norton, 2006. Print.
Bailey, S. H. (2005).Cases, materials and commentary on administrative law. London, Sweet& Maxwell.
Eric Dodge,and Melanie Fox,
Economics Demystified(McGraw-Hill, 2012)
Keat, P. G and Young, P. K. Y. “Managerial Economics”. Economic Tools for Today’s Decision Makers. Seventh Edition