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First let’s define externality Essay

As an example of the above definition:
Pollution from a factory can affect the health of nearby residents – negative The same factory can provide jobs to nearby residents – positive

Negative externality is two part: production and consumption. I will be using both these externalities in my following discussion on pollution.

Companies pollute on three different platforms: air, water and land. Air pollution is caused by:
•Power plants
•Domestic/industrial chemicals
•Natural causes – volcano, wildfires

Water pollution is caused by:
oLand disturbed from construction
oChemical pollution from mines, industries, etc
oInadequate sewage and treatment
•Damming of rivers
•Destruction of wetlands

Land pollution is caused by:
•Domestic, nuclear wastes and industrial wastes,
•human sewage
•mining and other factories
•increased mechanization
• Sewage discharged into rivers instead of being treated properly • Sanitary/hazardous landfill seepage
• Cemeteries
•Scrap yards (waste oil and chemical drainage)

You will note from the above that pollution is a hot topic and one of the most commonly used to define negative externality. The above causes of pollution serve as a grim reminder of the visible and mostly invisible effect on the consumers. And it certainly is not calculated into the economy.

The costs and benefits of pollution can be calculated by economists but this will not reduce its impact, merely factor into the cost of production of goods.

What will impact on the economy is the demand for pollution free living and the purchasing decision that will allow this. The following few examples come from my own ‘green’ list: •Diesel instead of petrol

•Switching of unnecessary electricity sources
•Organic foods within my budget
•No smoking
•Living in a ‘leafy’ suburb

A lot of South Africans (and world) citizens are making conscious buying decisions to reduce the effects of global warming and the depletion of the ozone layer. The costs of living ‘green’ is higher than average and the economy will see the impact of this as consumers demand ‘cleaner’ living conditions.

How can governments help reduce or eliminate negative externality? •Increase taxes on domestic pollutants such as cigarettes, solvents, etc •Pollution tax for industries
•Pollution limits on emissions
•Focus on residential and business zoning and the effect on the surrounding environment •New commercial/residential buildings must include ‘green’ technology and utilities •Providing separate bins for proper product recycling – domestic, commercial and industrial •The abolishment of ‘shanty towns’ for proper housing

(source Ref:,,, Economics: Global and South African Perspectives, Michael Parkin )

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