6.

0 IMPACT OF NEGATIVE EXTERNALITIES

Negative externalities usually come at the cost of individuals, while positive externalities

generally have a benefit. Our focus is on cigarettes which lead to death, illness and

impoverishment. This has a negative impact on people who may live in the area, causing

them harm. Pollution is another commonly known negative externality. Corporations and

industries may try to curb their costs by putting in production measures that may have a

detrimental effect on the environment. While this may decrease the cost of production

and increase revenues, it also has a cost to the environment as well as society.

When negative externalities are present, it means the producer does not bear all

costs, which results in excess production. With positive externalities, the buyer does not

get all the benefits of the good, resulting in decreased production. Let's look at a negative

externality example of a factory that produces widgets. Remember, it pollutes the

environment during the production process. The cost of the pollution is not borne by the

factory, but instead shared by society. [CITATION Neg \l 1033 ]

Smokers impose tremendous costs on themselves. Based solely on the degree to

which smoking shortens their life expectancy, which is by about six years, the cost per

pack is $35.64. That cost, of course, is a private cost. In addition to that private cost,

smokers impose costs on others. Those external costs come in three ways. First, they

increase health-care costs and thus increase health insurance premiums. Second, smoking

causes fires that destroy more than $300 million worth of property each year. Third, more

than 2,000 people die each year as a result of “secondhand” smoke. A 1989 study by the

RAND Corporation estimated these costs at $0.53 per pack. [CITATION Fal11 \l 1033 ]
 Cigarettes killed more than 8 million people a year around the world which is the

one of the biggest public health threats the world has ever faced. More than 7 million of

those deaths are resulted from the direct used of tobacco while around 1.2 million are the

result from non-smokers being exposed to second-hand smoke. The burden of tobacco-

related illness and death is heaviest when around 80% of the 1.1 billion smokers

worldwide live in low- and middle-income countries. [CITATION Tob19 \l 1033 ]

The economic costs of tobacco use are large and include a significant health care

costs for treating diseases caused by tobacco use as well as human capital is lost resulting

from the morbidity and mortality caused by tobacco. In some countries, children from

poor households working in tobacco farming to increase their family income. These

children are extremely vulnerable to "green tobacco sickness", caused by nicotine is

absorbed through the skin from handling wet tobacco leaves. [ CITATION Tob19 \l 1033 ]

Secondhand smoke is the smoke that fills restaurants, offices or other enclosed

spaces when people burn tobacco products such as cigarettes, bidis and water pipes.

There are over 7,000 chemicals in tobacco smoke, of which at least 250 are known to be

dangerous and at least 69 are known to cause cancer. There is no safe level of exposure to

secondhand tobacco smoke. In adults, secondhand smoke causes heart disease and

serious respiratory, including coronary heart disease and lung cancer. In infants, it

increases the risk of sudden infant death syndrome. In pregnant women, it causes

complications in pregnancy and low birth weight. Almost half of the children regularly

breathe air polluted by tobacco smoke in public places. Secondhand smoke causes more

than 1.2 million premature deaths per year.

65,000 children die every year from diseases caused by secondhand smoke. Anyone

should be able to breathe tobacco smoke free air. Smoke-free laws protect the health of

non-smokers, are popular, do not harm business and encourage smokers to quit. More

than 1.6 billion people, or 22% of the world population, are protected by the laws without

comprehensive national smoke. [ CITATION Tob19 \l 1033 ]

The greatest externality challenge in the modern world is to control our emissions

of greenhouse gases. The emission of greenhouse gases (GHGs) is associated with a wide

variety of economic activities such as coal-based power generation, oil-burning motors,

wood-burning stoves, etc. The most common GHG is carbon dioxide. The gases, upon

emission, circulate in the earth’s atmosphere and, if their build-up is excessive, prevent

sufficient radiant heat from escaping. The result is a slow warming of the earth’s surface

and air temperatures. It is envisaged that such temperature increases will, in the long

term, increase water temperatures, possibly cause glacial melting, with the result that

water levels worldwide will rise. In addition to the higher water levels, which the

Intergovernmental Panel on Climate Change (IPCC) estimates will be between one foot

and one metre by the end of the 21st century, oceans may become more acidic, weather

patterns may change and weather events may become more variable and severe. The

changes will be latitude-specific and vary by economy and continent, and ultimately will

impact the agricultural production abilities of certain economies.

While most scientific findings and predictions are subject to a degree of

uncertainty, there is little disagreement in the scientific community on the very long-term

impact of increasing GHGs in the atmosphere. There is some skepticism as to whether

the generally higher temperatures experienced in recent decades are completely

attributable to anthropogenic activity since the industrial revolution, or whether they also

reflect a natural cycle in the earth’s temperature. But scientists agree that a continuance

of the recent rate of GHG emissions will ultimately lead to serious climatic problems.

And since GHG emissions are strongly correlated with economic growth, the very high

rate of economic growth in many large-population economies such as China and India

mean that GHGs could accumulate at a faster rate than considered likely in the 1990s.

This is an area where economic, atmospheric and environmental models are used to make

predictions. Scientists attempt to infer something about the relationship between

temperature and climate on the one hand and carbon dioxide concentrations in the

atmosphere on the other, using historical data. Data values are inferred by examining ice

cores and tree rings from eons past. Accordingly, there is a degree of uncertainty

regarding the precise impact of GHG concentrations on water levels, temperatures, and

extreme weather events. The consensus is that, in the presence of such uncertainty, a wise

strategy would involve controls on the further buildup of gases.[CITATION Dou17 \l 1033 ]

References
Corporate Finance Institute. (n.d.). Negative Externalities. Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/economics/negative-
externalities/

Curtus, D., & Irvine, I. (2016). Principles of Microeconomics. CreateSpace Independent Publishing
Platform.

Fall. (2011). Principles of Microeconomics. Massachusetts Institute of Technology.

World Health Organization. (2019, July 26). Tobacco. Retrieved from

https://www.who.int/news-room/fact-sheets/detail/tobacco