Why is pollution a negative production externality?
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Answer:
Pollution as a negative externality. Pollution is a negative externality. ... The social costs include the private costs of production incurred by the company and the external costs of pollution that are passed on to society. The diagram below shows the demand and supply for manufacturing refrigerators
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Explanation:
negative externality is a cost that is suffered by a third party as a result of an economic transaction. In a transaction, the producer and consumer are the first and second parties, and third parties include any individual, organisation, property owner, or resource that is indirectly affected. Externalities are also referred to as spill over effects, and a negative externality is also referred to as an external cost.
Some externalities, like waste, arise from consumption while other externalities, like carbon emissions from factories, arise from production.
Hernando de Soto Externalities commonly occur in situations where property rights over assets or resources have not been allocated, or are uncertain. For example, no one owns the oceans and they are not the private property of anyone, so ships may pollute the sea without fear of being taken to court. The importance of establishing property rights is central to the ideas of influential Peruvian economist, Hernando De Soto, who has widely argued that successful market economies need a widespread allocation of property rights to enable economies to fully develop.