Introduction to Microeconomics Essay Sample
Externality is an economic benefit or cost affecting other parties other than the immediate individuals or firms engaged in the business and not depicted fully in the price of the commodity produced. For example, the waste product emitted from the production process may incur the immediate people clean up costs. Again, bees from a beekeeping firm to produce honey may help immediate farmers in crop pollination which amounts and economic benefit (Hope,1999).
One sure way of handling this problem is regulation (Burkett, 2006). Banning the occurrence for instance is a perfect regulation. In this case, issuing a directive that no uncontrolled emissions should come out of all economic enterprises. If the production process which leads to the gaseous emissions and other waste products is barred to operate, then this can be a sure way of handling the externality. Another regulation of reducing these emissions is taxation. The production process which yields the emissions may be highly taxed such that the cost of production of the economic activity is too high such that the firm cannot operate at the given condition. A regulation of issuing a recycling directive may also be imposed. If it is gases and other emissions, they may be recycled or reduced into harmless substances. This way, other parties out of the business will not be forced to incur heavy unexpected costs.
The other way of reducing emissions is self regulation (Laidler, 1974). In an incidence were the producer is forced to add the cost of production in issuing a remedy of the externality may serve to discipline one hence curbing emissions. For instance in our case we can create property rights upon clean air and environment which entitles the producers to some fees if engage in gaseous and other emissions production. This means that anybody who enjoys ownership of a property should meet all dues arising from its consumption.
These two policies are perfect in dealing with this problem because they all limit the owner from deliberate release of these emissions. In the regulation policy the government is a able to raise some revenues to finance its activities. This is through the imposition of taxes for instance. Another benefit is that the government may have control of all business activities. The illegal ventures are liable to bans.
Self regulation also may be beneficial to the government in the sense that errands will be subject to fee charges hence generation of government revenue (Burkett, 2006). Also, firms and individual becomes more disciplined because of fear of the consequences, hence do not go polluting the environment. These two policies may cost the government heavy operational costs of following them up to ensure everything is as stated. The level of emission reduction can be determined by considering the economic cost incurred by people as clean up charges. If it has reduced considerably the economic costs incurred, then the devices put in place are considered working.