Economics in the News

The New York Times article "Bulgaria's Air Is Dirtiest in Europse, Study Finds, Followed by Poland" explains the negative effects that smokestacks and vehicles have had on the air quality in Bulgaria and Poland. Although the factories and transportation seem to be a vital part of the city lifestyle in Bulgaria, the benefits they provide do not apply to anyone but the user. In fact, the gas that comes from both smokestacks and vehicle tailpipes imposes an external cost on the citizens that breathe in the air. Studies show that health problems have increased, including both asthma and cancer, because of the overuse of factories and transportation. The pollution has created an unhealthy living environment for not only those who live in Bulgaria and Poland, but the neighboring countries. Because air quality cannot be restrained between borders, surrounding countries are also effected by the pollution. An external cost is a cost that results from an activity that affects an uninvolved party. Air pollution is a common external cost that is imposed by a producer or consumer of a product on a third party that did not choose to incur that cost. While the citizens of Bulgaria work in factories and drive cars, they are extracting a negative cost on the people that breathe in the toxins released into the air, affecting the overall public health. This specific cost has increased the risk of health problems in Bulgaria because of the citizens' exposure to extremely polluted air. When observing a graph of the markets with negative externalities, the market price is too low, and the market quantity is to high. To achieve an efficient outcome, the price increases and the quantity decreases, as the supply curve decreases. On a graph that displays the market for an external cost, the original supply curve of the market is inefficient because the curve does not cover all costs of the externality.