Negative Consumption Externalities
A negative consumption externality occurs when an individual's use of a good or service imposes an uncompensated cost on a third party. Because the consumer does not bear the full social cost of their action, the market tends to result in overconsumption of the good relative to the socially optimal level. Examples include secondhand smoke from cigarettes or noise pollution from a loud party.
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The Economy 2.0 Microeconomics @ CORE Econ
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Negative Consumption Externalities
Positive Consumption Externalities
Network Externality
Example of Negative Externality: Bunker Hill Company Lead Poisoning in Idaho
A large-scale pig farming operation is established in a rural area. The farm is profitable, providing jobs and a steady supply of pork to the market. However, the waste from the farm runs off into a nearby river, contaminating the water source for a downstream town. The town must now invest in a costly new water filtration system, and local fishing businesses have collapsed due to the decline in fish populations. The farm does not pay for these downstream costs. In this situation, what is the specific cost that represents the negative consequence for a third party?
Analyzing an Economic Side-Effect
Analyzing an Uncompensated Cost
A chemical factory produces and sells industrial solvents. The manufacturing process releases airborne pollutants that cause health issues for people living in a nearby town. The town's residents face increased medical bills, but the factory does not cover these costs. Match each element of this scenario to its correct economic description.
Identifying Compensated Costs
A car manufacturer discovers a defect in its vehicles that increases fuel consumption for its customers. The company issues a recall and fully compensates all affected car owners for the extra fuel costs they incurred. This situation is an example of a negative externality.
Evaluating Solutions to Urban Congestion
When the production or consumption of a good imposes an uncompensated cost on a third party, such as pollution from a factory affecting nearby residents, this market failure is known as a(n) ________.
A factory that produces widgets also releases pollutants into the air as a byproduct. This pollution imposes health costs on the nearby community. Arrange the following statements to illustrate the logical sequence of events that describes this negative externality and its effect on the market.
An individual's action creates a cost for someone else. In which of the following scenarios is this cost most accurately described as a negative externality?
Marginal External Cost (MEC) (Definition)
Negative Consumption Externality
Solutions to Negative Externalities
Negative Production Externality
Negative Consumption Externalities
Royal Dutch Shell Oil Spills as a Negative Externality
Definition of Social Cost
Learn After
Comparison of Social and Private Costs in Negative Consumption Externalities
Positional Externalities
Market Failure and Social Dilemma: The Case of Antibiotic Overuse
A person's choice to smoke a cigarette in a crowded public space creates effects for others not involved in the decision. Arrange the following statements to correctly describe the economic sequence of events that leads to an inefficient market outcome.
A person purchasing a new, high-end electric car benefits the environment by reducing their personal carbon emissions. However, this purchase also causes a neighbor to feel intense envy. In economic terms, this envy is considered a negative consumption externality.
When an individual's consumption of a good generates a negative externality, the social cost associated with that consumption is ________ than the private cost borne by the individual. This discrepancy typically leads to a market outcome where the good is ________-consumed compared to the socially optimal level.
An individual in an apartment building purchases a new stereo system and plays music at a volume that significantly disturbs their neighbors. From an economic perspective, which of the following statements best analyzes this situation?
Analyzing the Market for Single-Use Plastic Bags
Pigouvian Tax: Correcting Negative Externalities