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By the end of this section, you will be able to:

  • Explain and give examples of positive and negative externalities
  • Identify equilibrium price and quantity
  • Evaluate how firms can contribute to market failure

From 1970 to 2012, the U.S. population increased by one-third and the size of the U.S. economy more than doubled. Since the 1970s, however, the United States, using a variety of anti-pollution policies, has made genuine progress against a number of pollutants. [link] lists the change in carbon dioxide emissions by users of energy (from residential to industrial) according to the U.S. Energy Information Administration (EIA). The table shows that emissions of certain key air pollutants declined substantially from 2007 to 2012; they dropped 730 million metric tons (MMT) a year—a 12% reduction. This seems to indicate that progress has been made in the United States in reducing overall carbon dioxide emissions, which cause greenhouse gases.

(Source: EIA Monthly Energy Review)
U.s. carbon dioxide (co 2 ) emissions from fossil fuels consumed 2007–2012, million metric tons (mmt) per year
Primary Fossil Fuels Purchased Electric Power Total Primary Fossil Fuels
End-use Sector Coal Petroleum Natural Gas
Residential (0) (14) (31) (134) (179)
Commercial (2) (2) (7) (126) (136)
Industrial (40) (62) 31 (118) (191)
Transportation 0 (228) 5 (1) (224)
Power (464) (36) (122) - -
Change 2007–2012 (508) (342) 121 (378) (730)

Despite the gradual reduction in emissions from fossil fuels, many important environmental issues remain. Along with the still high levels of air and water pollution, other issues include hazardous waste disposal, destruction of wetlands and other wildlife habitats, and the impact on human health from pollution.

Externalities

Private markets , such as the cell phone industry, offer an efficient way to put buyers and sellers together and determine what goods are produced, how they are produced, and who gets them. The principle that voluntary exchange benefits both buyers and sellers is a fundamental building block of the economic way of thinking. But what happens when a voluntary exchange affects a third party who is neither the buyer nor the seller?

As an example, consider a concert producer who wants to build an outdoor arena that will host country music concerts a half-mile from your neighborhood. You will be able to hear these outdoor concerts while sitting on your back porch—or perhaps even in your dining room. In this case, the sellers and buyers of concert tickets may both be quite satisfied with their voluntary exchange, but you have no voice in their market transaction. The effect of a market exchange on a third party who is outside or “external” to the exchange is called an externality    . Because externalities that occur in market transactions affect other parties beyond those involved, they are sometimes called spillovers .

Externalities can be negative or positive. If you hate country music, then having it waft into your house every night would be a negative externality    . If you love country music, then what amounts to a series of free concerts would be a positive externality    .

Questions & Answers

the various economic systems;
King Reply
what is consumer surplus
Amara Reply
What is economics
Lekan Reply
economic is a social science that studies human behaviour as a relationship between
Kakay
economics is the study of how people allocate their limited resources to provide for their wants
Caliphonia
what causes demand curve shift to left
Richard Reply
When the price of a good rise rapidly
Daniella
what are the disadvantages of dumping
Edwin Reply
what isa microeconomics use for
Favour Reply
what causes demand curve shifted to the left?
Richard
what is demand
John Reply
demand is amount of goods and services that a consumer is willing and able to purchase at a giving price over a period of time
roy
demand is some specific thing thats needed by consumer at a certain time
Melat
demand is the willingness and ability to demand a particular product at a particular price and at a particular time
Rahul
demand is an ability and willingness of a consumer to purchase a particular commodity at a given price over a period of time
adebiyi
What does the 45-degree line show
Hassan Reply
the supply line
Neolskae
been unemployed mean s u don't have work whilst been out of labour for means you are not in age of working or you are above the working age (aged)
roy Reply
no, only the working age
roy
Please briefly explain the relationship between the scarcity, choice and opportunity costs
Thandokazi Reply
What is the effect of raising in price to revenue
Michael Reply
yes
Saa
what is the difference between inflation and deflation?
nebye
price effect
Hez
when you increase price, you increase revenue
Hez
What are the types of price elasticity of supply
jamilu Reply
What's are the types of elasticity
jamilu
what is effect of riaising in price to revenue
Shiyghan Reply
consumer consumption will reduce, as well as demand will fall.
kuntu
what cause inflation
Foday Reply
expenditure on capital goods by the business is known as?
rhandzu Reply
ok
Shiyghan
capital expenditure
Zulkiful

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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