Introduction to Environmental Protection and Negative Externalities

Capitalism is a compilation of individual decisions

• we assume people aren’t crazy

  • self destructive

  • unreasonable

SO capitalism doesn’t account for these crazies

We have a buyer and a consumer

• they make the price according to supply and demand

If either one is harmed then no one will agree

• has to be mutually beneficial

WHAT IF

there’s a third party

Externality is a WEAKNESS of capitalism

externality -The effect of a market exchange on a third party who is outside or “external” to the exchange

negative externality - bad impact on third party

• example

  • pollution

    • solving global warming

      • might be unforeseen consequences

      • Costs a LOT

Positive Externalities - good consequence to a third party

• Good consequence example -

  • chocolate factory in your area and now it smells like chocolate and you like chocolate

non excludable - you can’t keep it exclusive or keep people out

public good - non exclusive and non rival