Coffee Consumption - What Can Be Done to Encourage Positive Externalities and Discourage Negative ones?

Article Analysis: Coffee Consumption

ECO/365

Jason Foster

April 29, 2013

What can be done to encourage positive externalities and discourage negative ones?

To encourage positive externalities, chemical industries need to increase the supply and demand of the chemical in which they produce. By using research and development of their product to the fullest, the outcome will be positive for those beyond the producer and the company doing the research. Keeping the environment clean will benefit society, just as research and development will create gains that the company who is responsible for them cannot capitalize on. If the government provides grants and subsidies to the producers, the benefit would be a reduction in the cost associated with producing the product and therefore encouraging a higher supply. Tax revenue is something that the government can implement to help. The demand for a good or service also generates positive externalities. This can be done by reducing the price that consumers pay for the good.

Chemical industries need to take into consideration those affected by harmful things that they put into the air or water. These industries can avoid negative externalities by finding other places to dump untreated waste, other then places like rivers, in which someone else will end up paying for. The government should also keep regulating the chemical industry to hold them responsible for polluting the air or drinking water and not leaving the clean up to the tax payers. Although the cost of the clean up is not passed on to the consumer via the price they pay for the good or service, they eventually end up paying for it via taxes. The government needs to hold the chemical industries liable for the health and welfare of those that are affected by the dumping or polluting, by posing strict penalties on them.

Externalities, whether positive or negative, produce economic problems for individuals, households, and businesses when they do to internalize the indirect costs of the transactions. Government intervention is required to help make sure that the costs and benefits are fully internalized.