Externalities
What is an externality?
Externalities are costs (negative externalities) and benefits (positive externalities), which are not reflected in free market prices. Externalities are sometimes referred to as 'by-products', 'spillover effects', 'third-party effects' or 'side-effects', as the generator of the externality, either producers or consumers, or both and impose the costs or benefits on others who are not responsible for initiating the effect. The key feature of an externality is that it is initiated and experienced, not through the operation of the price system, but outside the market.
Externalities are divided into various types, some of them are as follows.
• Production externality:
It is initiated in production and is received
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If you build a new road, the external cost is the loss of a beautiful landscape which people can no longer enjoy.
Social cost
• Social cost is the total cost to society; it includes both private and external costs.
• With a negative externality the
Social Cost > Private Cost
Negative Externality of Production A unique example of Negative Externality
Recently, it has been observed that most of our Northern Areas are being destroyed by the garbage and litter produced by the local and international tourists. These tourists don’t throw the garbage and left overs in the garbage cans and bins but instead they throw wherever they want to. It has been reported that Lake Saif-ul-Malook has been recently filled with garbage all over on its boundaries. Similarly, the Khunjerab Pass has also been destroyed with litter. This garbage has destroyed the scenic beauty of our Northern areas and leaving a negative impact on the other tourists and the residents of these areas.
Government and the local bodies of these areas should take action against these activities and policies should have been devised for such incidents.
Government should place garbage cans in the areas and make people responsible for its