ECONIMICS 405 Assignment2 Externalities

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Externalities Externalities Introduction Externalities are those effects of a project to the environment around them, which are indirect and were never intended as the major purpose for that project as from its initiation. Externalities can either be negative or positive depending on whether it causes a cost or benefit to the stakeholders and the nearby environment. When the cost of the effect exceeds the benefits, we say that the externality is a negative one. whereas when the benefits of the effect exceed the cost, then it is said to be a positive externality. This paper is intended to identify and discuss just three examples of externalities and their effects to the stakeholders and affected parties. Discussion An access road network might be constructed from the sugar company to various sugar belts to ease transportation of sugarcane from the farms to the company. In the minds of the initiators of such a project, their major aim is to solve the problem of inaccessibility to the remote farms. However, the resulting beneficiaries of good road services become more than predetermined. With the same road project, other farmers, who are not even for sugarcane, may benefit as they will also be able to access market easily due to well constructed roads. Those dealing in transportation of passengers and goods will also benefit with the road construction, which was not specifically meant to benefit them. This is an example of a positive externality, where the whole community around where the road has been constructed may benefit due to the construction even though the major intention of constructing the road was for something else. A paper milling factory emits gases like Sulphur Dioxide to the atmosphere during their paper processing (Armon, Duncan, Lance, 2009). Some of the dangerous compounds are also directed to the nearby rivers as wastes to flow downstream. The result of such careless acts of the factory with time may be that the people living around the company may be affected by the gas emissions. At the same time, the people downstream may also be affected by the heavy dangerous compounds as they use the water downstream to drink, water their plants, and water their livestock since some of these compounds like Lead are heavy and take too long in the system to dissolve, hence interfering with the proper functioning of the body system. This is an example of a negative externality. The third example, which is the second negative example, is in a cement manufacturing Company where a lot of dust is emitted, and this affects the workers and the people around where the plant is located (Gene, 2001). When the workers and the people around this place inhale the dust from the factory, their breathing system gets interfered with. The dust blocks the organs like the nostril and the windpipe and eventually gets accumulated in the lungs, disabling the proper functioning of these organs. The resulting effects are difficulty in breathing and suffocation. The victims may finally die if no proper measures are taken in time. These externalities might be allowed to exist since the major projects that bring the externalities are as well important and necessary to humanity. Therefore, for positive externalities, the remedy is that subsidies may be provided by the government to promote such projects. In the case of negative externalities, the government might put heavy penalties like ban, expensive license, and regulation of waste management on the Companies that are involved so that many such Companies may not exist. Both affected parties and the stakeholders therefore have a role to play in mitigating the externalities. The government can remove waver taxes and duty charged on the materials used in the road construction in order to promote road construction. In addition, they may also offer subsidies to help in the road constructions. The affected people can also participate by maintaining the project started and making sure it does not fail to run. For negative externalities, the government should put unfriendly measures to make sure that the externalities are controlled and the affected people are compensated. Conclusion Externalities are identified by either costs or benefits they bring to the people affected, who were not the intended beneficiaries of such project outcomes. The positive externalities are benefit associated while. the negative ones are cost associated. The government and the stakeholders need to promote the positive externalities while, at the same time, try to reduce the effects of the projects that produce negative externalities through various measures. Various stiff measures and penalties are necessary to reduce negative externalities applied by the government on the stakeholders involved. On the other hand, friendly measures like subsidies are applied to promote positive externalities whose benefits cannot be excluded from the resulting users of the economic activity or project. References Armon, R., Duncan, K. F., Lance, T. (2009). Global Warming and Economic Externalities. A Journal of the Schwartz Center for Economic PolicyAnalysis and Department of Economics , 1-22. Gene, C. (2001). The Free Market. The Mises Institute Monthly Journal , 19 (8).