The Concept of Externalities - Essay Example

Among externalities are ecological issues. When ecological issues come in, it is hard to control it. Example for these is the oceans, the rivers, and the air (Gale, 2001). It is hard for a market to cope up especially if there is an ecological exploitation. Most affected to this are those market whose products are taken directly to the one exploited, e.g. like sea foods. But usually the causes of the negative externalities are done also by the market itself. Example are those factory owners, if they dispose there wastes to the streams, they cause pollution.

The market maybe aware about the impact they are doing but they think they can get away with it, or because the disposing of the garbage is too high, or they limit the budget for disposing waste to avoid costly method of disposing it (Mind your Business, 2003). In the long run, the negative impact will go back to them and that's when they realize the result of there actions. The market should regulate their waste disposal. They should invest a food was to dispose their wastes. In this case, they can be able to prevent ecological issues.

To avoid the market failure, there are things that can be done not only by the market itself but the government can also intervene. Since the market know little about environmental impacts this requires research. This way though causes high costs for research. But there's another way, the government. The government has many accesses to more related action firms about this. The government can enforce an environment-protecting set of standards on the polluting industry. They can also limit the activities of this markets that can cause negative externalities.

With this policy, markets will be controlled on their activities that may affect the environment. The government can enforce a tax on the polluter basing on estimated cost the damage done; in return the tax will then be used to eradicate pollution (Thompson, 2005). This way the only affected by the tax imposed are the producers and the consumers of the goods. Quoted from Mind Your Business news (Oct., 2003), "During the summer, they released their annual report - part of which was devoted to reporting on the performance of businesses in relation to incidents of pollution.

The report suggests that overall incidents of serious pollution were 20% lower than in 2001 but cautions against any complacency and identifies well known businesses as being guilty of repeat offencesThe average fine per company rose by over one third to 8,744. Fines of more than 20,000 rose by nearly 42% compared to 2001 but the Environment Agency clearly feel that the size of the fines are insufficient to persuade companies to change their behavior. They cite numerous examples of businesses who flouted the regulations including a company director who dumped soil containing arsenic, mercury and cyanide.

Arsenic is a deadly poison it its pure form and can cause circulatory problems, skin damage and increases the risk of cancer. Cyanide causes nerve damage and thyroid problems and mercury causes skin disorders, internal bleeding, liver, kidney and intestinal damage. He was jailed for a year!" So for those markets out there beware about the rules and the consequences you might get into when it comes to environmental issues! According to Schultze (2006) that when a market failure occurs the resources fails.

He emphasized that