This is because profit maximisation does not include non-monetary costs such as damages done to the environment. The absence of considering these costs leads to the formation of externalities. This leads to a socially inefficient outcome. While the individual profits from the pursuit of economic interests, society suffers due to the negative externalities imposed to the economy. An example that comes to mind would be climate change due to the indiscriminate burning of fossil fuels and industrialisation. For instance, in China, which had seen an exponential increase in Gross Domestic Product over the past 50 years , there had been huge impacts on the environment. Many cities are seeing pollutions level well above the acceptable levels and half of China’s water is deemed “too polluted for human consumption” . This indicates that without sufficient control through regulation, high levels of pollution and negative externalities exists because no individual would step up to take responsibility for the negative externalities. Similar levels of pollution were also seen in New York in the 1950s and 60s due to rapid industrialisation , indicating that this is a problem for cities and countries which are in the midst of developing. These case studies show how the environment suffered during periods of industrialisation and how the impact affected others negatively. A proposed solution is regulation, as it apportions the negative externalities onto corporations, leading to the mitigation of these negative externalities. A successful example would be the 1970 Clean Air Act in the United States, which was a reaction to the high pollution levels in New York in the 1950s and 60s. The act is still in place today and has been credited with preventing 205,000 lives from ending prematurely due to pollution, and having an economic
This is because profit maximisation does not include non-monetary costs such as damages done to the environment. The absence of considering these costs leads to the formation of externalities. This leads to a socially inefficient outcome. While the individual profits from the pursuit of economic interests, society suffers due to the negative externalities imposed to the economy. An example that comes to mind would be climate change due to the indiscriminate burning of fossil fuels and industrialisation. For instance, in China, which had seen an exponential increase in Gross Domestic Product over the past 50 years , there had been huge impacts on the environment. Many cities are seeing pollutions level well above the acceptable levels and half of China’s water is deemed “too polluted for human consumption” . This indicates that without sufficient control through regulation, high levels of pollution and negative externalities exists because no individual would step up to take responsibility for the negative externalities. Similar levels of pollution were also seen in New York in the 1950s and 60s due to rapid industrialisation , indicating that this is a problem for cities and countries which are in the midst of developing. These case studies show how the environment suffered during periods of industrialisation and how the impact affected others negatively. A proposed solution is regulation, as it apportions the negative externalities onto corporations, leading to the mitigation of these negative externalities. A successful example would be the 1970 Clean Air Act in the United States, which was a reaction to the high pollution levels in New York in the 1950s and 60s. The act is still in place today and has been credited with preventing 205,000 lives from ending prematurely due to pollution, and having an economic