ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Implications of negative externalities If goods or services have negative externalities, then we will get market failure. This is because individuals fail to take into account the costs to other people. To achieve a more socially efficient outcome, the government could try to tax the good with negative externalities.

Detailed explanation-2: -A negative externality is an indirect cost that a third party incurs from another party’s production or consumption of a good. Negative externalities indicate that the social costs are higher than the third parties’ private costs.

Detailed explanation-3: -Externalities and Market Failure Externalities lead to market failure because a product or service’s price equilibrium does not accurately reflect the true costs and benefits of that product or service.

Detailed explanation-4: -A classic example of a negative externality is pollution that results from the production of a good in a factory. Individuals living around the factory are exposed to the pollution and may cause them health issues.