Assessment 2 (Research Essay) - Due: Week 7 Friday (31 Aug XXXXXXXXXX:00 pm AEST Note: no submissions including automatically submitted by Moodle will be reverted to the draft after the due date. This...

Market Externalities
Market Externalities
Student Name
Introduction
In economics, Externalities may be defined as a number of events or effects that may affect an activity by which it is not related to. For e.g., if the cost of the product increases due to some other factors which are not directly related to the production of the product or transportation of the product it can be treated as third party i.e government taxations or license fees imposed on some products which may affect final buyer (Lalive, 2015). Externalities are the impact or the consequences towards which it results in certain consequences or the repercussion effects with regards to the environment in which we stay in. Such As construction of the airport, may help us to access the airport convenience at our time but it would result in the noise and the consequent air pollution which can turn out to be health hazards for the consumers. Though sometimes it might be confusing for us to understand that whether the particular activity is an externality and when can be its related to the base activity, some differentiated examples may clear our understanding.
In this paper, we would be evaluating the meaning of the externalities, types of externalities along with the effects of the externalities on the environment along with the proper understanding of the government steps to curb the situation.
Towards the end, we have drawn a conclusion which would be able to throw more details related to the information.
Body
Externalities are defined as a effects or the determination of the consequence with respect t to the industrial or commercial activity with respect to the effects along with the contribution of the parties which can allow a proper reflection in terms of the market prices, along with the effect of the pollination of surrounding crops which can also keep for honey (Levit, 2016).
We can divide externalities into 2 parts.
Positive Externalities: It causes a positive effect on another object. Positive externalities are the achievements for which no payment is supposed to be made by the society (OECD, 2015).
In the below figure, the positive externality is determined as a social benefit to be exceeded with respect to the private benefits which has resulted in the social optimum output which is Q2 higher than the private optimum Q1.
Negative Externalities: These are the harmful effects that may affect others for which no penalty is to be paid by the firm (Kuminoff, 2016).
The below figure is of the negative externality which suggests that the negative externality is a social welfare loss. In this situation, there are higher social costs with respect to the social benefits which results in a negative scenario.
Though sometimes it might be confusing for us to understand that whether the particular activity is an externality and when can be its related to the base activity, some differentiated examples may clear our understanding.
Let's just take an example of Eastern Indonesia, where a segment of people forms tobacco in villages. We all are aware of the volcanoes eruptions in Indonesia they are active and they can erupt at any point in time (Kaplan, 2016).
Now, just assume that a volcano eruption occurs and result in damaging, burning and affect the local farms. We can say that volcano erupt is a negative externality in the activity of tobacco farming.
Let’s just take another example of negative externalities Guinea is an African country rich in iron. In Guinea mining is the major exported revenue for the country over half of the exports are through mining. Recently, we heard in news about the Ebola epidemic it spreads all over in Western Africa it spreads in Guinea as well. It effects are a blow on economic conditions of the country, as it affects workers they were becoming ill and even dying, which results in a reduction of the working hours of the whole country which result in negative impact on the economy. We can imagine the economy which is more restrained to opening and closing hours will sell less and it will generate less wealth also it will create more unemployment. In this scenario, the loss is greater for the society rather than to the individuals, even though sufferers are more individuals.
Now, if we talk about positive externality the corporate social responsibility measure taken by a company may be like offering free treatment or subsidized treatment to people or free and easy access of education to children on charity (Jones, 2015). Also, tree plantation by a company in this society gets benefited which results in the better environment, but no payment is made. Companies do maintenance in public parks and green spaces control and managed freely by organizations.
We can count some of the activities which have both positive and negative externalities. Like cigarettes kill people who inhale them (Orchard, 2016). But you know cigarette smoke can also harm to those people even who are just passing nearby the smoking area that is why most office buildings consider smoking area should slightly be away from the working environment. On another hand, it creates revenue for the government by the higher taxes.
Cigarettes are demerit goods that mean that they are not good for a society rather they are really very harmful to the society but still, it is overproduced and consumed by individuals (Dybvig, 2013). It causes negative externalities or a huge social cost to which cannot be compensated by anyone. Cigarettes consumption not only causes major health issues for the consumer but also produces an adverse effect on the society that is why it is called a negative externality because its social benefits are less than the private benefits.
The consumers don't think about the adverse effects of consumption of cigarettes which third parties have to face (like they have to suffer from Asthma, other lung diseases ), they only think about their enjoyment and their benefits.
    
Negative Externalities due to the Smoking
1. Liability for a company:- A smoker proves to be a liability for a company, as he will take frequent breaks for smoking while working...