Externalities For Research Paper

Externalities, by definition, are the benefits or costs that affects someone who is not directly involved in the production or consumption of a good or service (Hubbard et al., 2012). These externalities cause differences between private and social costs and benefits and inadvertently undermine the efficiency of a market. In this particular case, the production costs of any good that emits carbon as a byproduct is not just borne by the producers themselves, but also society as a whole. This pollution of the atmosphere may give rise to numerous problems that society has to bear and in economics, translates to an external cost.

Figure 1

One method to deal with these external costs would be to tax the producers. Figure 1 represents effects of tax on external cost. The
By mandating that producers are to be taxed, it would subsequently allow the market to internalise the external costs and prevent the overproduction of such
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