ECON 1000 Lecture Notes - Lecture 9: Arthur Cecil Pigou, Economic Equilibrium, Ecotax
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ECON 1000 Full Course Notes
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An externality is a cost or bene t that arises from production and falls on someone other than the person or the rm choosing the action. A negative externality imposes a cost and a positive externality creates a bene t. Burning coal to generate electricity emits carbon dioxide. Logging and clearing forests destroys the habitat of wildlife and adds carbon dioxide to the atmosphere. Other examples are noise from aircraft and trucks, pollution of rivers and lakes, and air pollution in major cities from auto exhaust. Positive production externalities are less common than negative externalities. Two examples arise in honey and fruit production. By locating honeybees next to a fruit orchard, fruit growers gets an external bene t from the bees, which pollinate the fruit orchards and boost fruit output. Honey producers get an external bene t from the orchards. Negative consumption externalities are a common part of everyday life.
