1. Negative Externalities Where the Free Market Needs Help

2. EXTERNALITIES An externality is the uncompensated impact of one person’s actions on another person

3. Efficiency requires: All costs of production must be counted by producers If pollution is “not counted” => society bears the costs of production This is not efficient

4. Negative Externalities –Automobile exhaust –Cigarette smoking –Barking dogs (loud pets) –Loud stereos in an apartment building –Noisy Students –Neighbor’s poorly maintained property –Pollution

5. Positive Externalities –Restored historic buildings –Research into new technologies –Neighbor’s well maintained property Youtube video—cool examples

6. MARKET INEFFICIENCY Negative externalities lead markets to overproduce Market price should be here Quantity demanded/ supplied at the true price should be here S2

7. Specific Examples: Before After Regulation/Clean Up Efforts Lake Erie

8. Acid Rain

9. Global Warming

10. Solutions to Pollution Increase Government Regulation a) Tax the pollutant b) Fine corporations/individuals who pollute c) Provide incentive to not pollute oil carbon, etc.

11. Creating an Incentive to Not Pollute: Cap & Trade System Gov’t can create a system of trading pollution credits [Read Article if time]

13. Questions to consider: 1.Who is in charge of pollution standards? 2. Should countries all have the same pollution/ environmental standards? Global Pollution Standards