The too many resources are allocated to its

The article talks about the problem faced due to excessive production and usage, not only to a certain geographical area but to the whole world. This has become a serious problem now and has to be attended to immediately. This is an example of negative production of externality which will be dealt with in more detail in the commentary below.

 “Negative externality of production refers to external cost created by producers. The problem of environmental pollution, created as a side effect of production activities, is very commonly analyzed as a negative externality of production”.

‘Market failure refers to the failure of the market to allocate resources efficiently. Market failure results in allocative inefficiency, where too much or too little goods or services are produced and consumed from the point of view of what is socially desirable. Overprovision of a god means too many resources are allocated to its production (over-allocation); underprovision means that too little resources are allocated to its production (under allocation).’

The welfare loss of negative production externality:                    

 ‘A deadweight loss is a cost to society created by market inefficiency. Mainly used in economics, the deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. A price ceiling, such as price controls and rent controls; price floors, such as minimum wage and living wage laws; and taxation are all said to create deadweight losses’.

 

In a market the, the welfare loss leads to the reduction of producer and consumer surplus.                                                

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This graph above indicates the negative externalities of excessive production of plastics. There are external costs that affect the society, such as the wildlife due to excessive usage of plastics. So when there is a consumption externality such as this, the marginal private benefit does not reflect the social benefits. The shaded area shows the welfare loss, which shows that the benefit in the society has reduced due to over-allocation of resources to the production of plastics. The gap between MSB and MPB shows the external costs. An external cost is a cost that affects the society to suffer the cost.

 

There are two main ways of correcting this externality, namely: government regulation and market-based policies.

‘Government regulations to deal with the negative production of externalities rely on the ‘command’ approach, where the government uses its authority to enact legislation and regulation in public’s interest’. Regulation can be used to prevent or reduce the effects of production externalities. They can uses laws like limiting the number of pollutants by setting a maximum level of pollutants permitted. 

The second method is market-based polices. The government can make policies restricting the power of the market to correct negative production externalities.  There are two main ways to do so: taxes and tradable permits.  ‘Tradable permits, also known as the Cap and trade schemes, are a relatively new policy involving permits to pollute issued to firms by the government to or an international body’ . These permits to pollute can be traded in a market.

By limiting the number of permits, the government can control the pollution.

 

The second method is the use of carbon taxes. ‘A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas). More to the point: a carbon tax is the core policy for reducing and eventually eliminating the use of fossil fuels whose combustion is destabilizing and destroying our climate’ .

 

The third method is by imposing taxes. Doing this will increase the cost of production of the product and therefore discouraging the producers to buy it. In the diagram below we see the impact of imposing taxes:

By imposing taxes on 0the production of plastics, the government can discourage the consumption of plastics as the price will increase. The effect on indirect cost is shown in the graph above, where tax is charged on plastics. It results in a decrease in supply curve from MPC to MPC + tax. Their reason for a decrease in supply is because the cost of production will rise as the tax increases. At the new equilibrium, Q opt will be produced and be sold at the price of 72, which is the price that is paid by the consumers and the producers receive that price. An increase of tax in plastic would result in a fall in demand, hence increasing benefits for the society such as less money spent on environment conservation and would increase the life span of most species.

Therefore we can conclude that by imposing taxes, the negative production of externality can be overcome.

 
    The article talks about the problem faced due to excessive production and usage, not only to a certain geographical area but to the whole world. This has become a serious problem now and has to be attended to immediately. This is an example of negative production of externality which will be dealt with in more detail in the commentary below.

 “Negative externality of production refers to external cost created by producers. The problem of environmental pollution, created as a side effect of production activities, is very commonly analyzed as a negative externality of production”.

‘Market failure refers to the failure of the market to allocate resources efficiently. Market failure results in allocative inefficiency, where too much or too little goods or services are produced and consumed from the point of view of what is socially desirable. Overprovision of a god means too many resources are allocated to its production (over-allocation); underprovision means that too little resources are allocated to its production (under allocation).’

The welfare loss of negative production externality:                    

 ‘A deadweight loss is a cost to society created by market inefficiency. Mainly used in economics, the deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources. A price ceiling, such as price controls and rent controls; price floors, such as minimum wage and living wage laws; and taxation are all said to create deadweight losses’.

 

In a market the, the welfare loss leads to the reduction of producer and consumer surplus.                                                

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This graph above indicates the negative externalities of excessive production of plastics. There are external costs that affect the society, such as the wildlife due to excessive usage of plastics. So when there is a consumption externality such as this, the marginal private benefit does not reflect the social benefits. The shaded area shows the welfare loss, which shows that the benefit in the society has reduced due to over-allocation of resources to the production of plastics. The gap between MSB and MPB shows the external costs. An external cost is a cost that affects the society to suffer the cost.

 

There are two main ways of correcting this externality, namely: government regulation and market-based policies.

‘Government regulations to deal with the negative production of externalities rely on the ‘command’ approach, where the government uses its authority to enact legislation and regulation in public’s interest’. Regulation can be used to prevent or reduce the effects of production externalities. They can uses laws like limiting the number of pollutants by setting a maximum level of pollutants permitted. 

The second method is market-based polices. The government can make policies restricting the power of the market to correct negative production externalities.  There are two main ways to do so: taxes and tradable permits.  ‘Tradable permits, also known as the Cap and trade schemes, are a relatively new policy involving permits to pollute issued to firms by the government to or an international body’ . These permits to pollute can be traded in a market.

By limiting the number of permits, the government can control the pollution.

 

The second method is the use of carbon taxes. ‘A carbon tax is a fee imposed on the burning of carbon-based fuels (coal, oil, gas). More to the point: a carbon tax is the core policy for reducing and eventually eliminating the use of fossil fuels whose combustion is destabilizing and destroying our climate’ .

 

The third method is by imposing taxes. Doing this will increase the cost of production of the product and therefore discouraging the producers to buy it. In the diagram below we see the impact of imposing taxes:

By imposing taxes on 0the production of plastics, the government can discourage the consumption of plastics as the price will increase. The effect on indirect cost is shown in the graph above, where tax is charged on plastics. It results in a decrease in supply curve from MPC to MPC + tax. Their reason for a decrease in supply is because the cost of production will rise as the tax increases. At the new equilibrium, Q opt will be produced and be sold at the price of 72, which is the price that is paid by the consumers and the producers receive that price. An increase of tax in plastic would result in a fall in demand, hence increasing benefits for the society such as less money spent on environment conservation and would increase the life span of most species.

Therefore we can conclude that by imposing taxes, the negative production of externality can be overcome.