1. NATURAL ENVIRONMENT & BUSINESS
UNIT - 15
NATURAL ENVIRONMENT & BUSINESS

2. Externalities:
This is also known as Spillover Effects or Neighborhood Effect.
Externalities are common in virtually every area of economic activity. They are defined as third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid. 

3. For example: - a chemical factory emits wastage as a by-product into nearby rivers and into the atmosphere. This creates negative externalities which impose higher social costs on other firms and consumers. e.g. clean up costs and health costs. 
For example: - An individual planting an attractive garden in front of his or her house may provide benefits to others living in the area, and even financial benefits in the form of increased property values for all property owners.
Education creates a positive externality because more educated people are less likely to engage in violent crime, which makes everyone in the community, even people who are not well educated, better off.

4. Positive externality in consumption (Education)
Negative externality in consumption (Teenage rider, Smokers)
Positive externality in production (Beekeepers)
Negative externality in production (wastage of industries)

5. Environment Degradation:
Environmental degradation is the deterioration of the environment through depletion of resources such as air, water and soil; the destruction of ecosystems and the extinction of wildlife.
Environmental damages are of following category ;
Water pollution
Air pollution
Soil pollution
Deforestation
Solid and hazardous wastes

6. Internalizing Externalities:
Government taxes and subsidies
If MSC>MPC & MSB<MPB = taxes should be imposed.
If MSC<MPC & MSB>MPB = subsidies should be given.
Direct government regulations
Introduction of emission standards
Prescribing emission fees
Introduction of liability rules
Defining property rights
Negotiation and the coase theorem

7. The Global Environmental Threat:
Climate change
Global warming or green house effect
Acid rain
Ozone layer depletion
Nuclear accidents and holocaust.