Posts tagged positive

Data Response: Trees

What are the external costs/benefits of trees?

(a) (i) Negative externality are the bad effects that are suffered by a third party when a good or service is produced or consumed.

(ii) Positive externalities are beneficial effects that are enjoyed by a third party when a good or service is produced or consumed.

(b) Graph 1: Negative Externality of Tree Branch

Branches falling in a neighbor’s yard could be considered a negative externality looking at several points. If branches from trees fall in a neighbor’s yard, the neighbor would have to take his/her time to clean the branches up. Many business people think of time as money. The time the neighbor has to take to clean up the branches could be converted to a monetary value. Also, the ‘labor’ of cleaning up the branches also could be converted to a monetary value. In addition, if a neighbor suffered psycologically by the constant falling of branches from his/her neighbor tree can be conpensated by money. However, many ‘modest’ or ‘ordinary’ neighbors would not complain about it fearing the relationship with his/her neighbor could get bad. As it is illustrated in the graph, the time, labor, and psycological suffering of falling branches is not reflected in the graph. So this falling of branches from the nieghbor’s tree could be considered a negative externality.

(c) Graph 2: Government Intervention to Stop Negative Externality

Government could intervene if a neighbor complains to the local authorities about this annoying branches. A government could put a tax on a neighbor’s tree for having these ‘significant’ negative externalities and put a curve of MPC up to MSC in the graph 1. Or, the government could persuade the neighbor to cut down trees or clean up the branches him/herself and move the curve of MPB down to MSB in graph 2.

(d) If a government taxes on the neighbor for the falling of branches, it eventually lower the number of branches falling on the poor neighbor’s garden, however there are some drawbacks. The neighbor getting taxed would have monetary loss for his/her tree’s wrongful acts. To explain this graphically, in the graph 1, the number of branches falling decreases, however, cost of branches falling increases. Therefore, it is hurting the neighbor of the wrongful tree. However, if the government persuades the person to either cut down trees or clean up the branches him/herself, it will both let both neighbors to benefit. The owner of the tree can still keep the tree and the neighbor would not have to suffer from the branches falling of the tree. As illustrated in graph 2, it both lowers the cost and quantity of falling branches. So the best way for the government to do is to persuade the owener of the tree to clean up the branches falling off from the trees.


Leave a comment »

Externalities in Real Life

Global Warming is an example of negative externality.

BBC News: Noise pollution on the increase

BBC News: Schoolies week in Australia causes binge drinking worry

Externalities are costs (negative externalities) or benefits (positive externalities), which are not reflected in free market prices. For example, as a result of manufacturing of products, the CO2 levels in the atmosphere increase and therefore results in global warming. So global warming is an negative externality.

In the class, we have looked at the videos about real life externalities. In the videos above in the links, they reported the negative externalities caused by noice pollution and binge drinking.

In the first video, some teenagers were having a party at the house where the sound-proof system was poorly installed. As a result of this boisterous party, neighbors had to suffer a noise pollution. This is one of the negative externalities. The another is that the policemen had to go to the reporter’s house to find out what the problem is and go to problem-making teenager’s house for warning. Boisterous party of teenagers had negative externalities of upset neighbors and the time of the policemen. Some might say that it is policemen’s job to solve these kinds of problems, however, in the video over 300% of calls to police office increased because of the noise pollution. So, it has cost policemen’s time to solve other problems. So the policemen would not have time to stop other crimes from happening. Overall, teen’s noisy party has cost the society a lot, more than their upset neighbors.

In the second video, it reported that teenagers binge drank after their examination as a ceremony. Teenagers were having fun, however, it has cost the society some negative externalities. For example, policemen and volunteers were patrolled in order to prevent some teens from alcoholic poisoning. It has cost policemen’s and volunteer’s time and energy in keeping eye on these teens. Also, the teens probably littered and did not pick up the trash at the beach. This would also cost the local government money for employing people to clean the mess.

In sum, there are many externalities to what we do. This is not limited to economic transaction. There could be externalities from anything we do. In my opinion about the teenager’s binge drinking, the government should just give disadvantages to the teenagers for drinking. For example, if a student gets caught drinking, he/she can be sent to do 30 hours of service hours in alcoholic addiction support center as a punishment.

Comments (2) »