Consumers can
create externalities when they purchase and consume goods and services.
·
Pollution from cars
and motorbikes
·
Litter on streets and
in public places
·
Noise pollution from
using car stereos or ghetto-blasters
·
Negative externalities
created by smoking and alcohol abuse
·
Externalities created
through the mis-treatment of animals
·
Vandalism of public
property
·
Negative externalities
arising from crime
In these
situations the marginal social benefit
of consumption will be less than the marginal
private benefit of consumption. (i.e. SMB < PMB) This leads to the
good or service being over-consumed relative to the social optimum. Without
government intervention the good or service will be under-priced and the
negative externalities will not be taken into account.
In the example
shown in the diagram above we illustrate the potentially negative effects of
people consuming cigarettes on other consumers. The disutility (dis-satisfaction) created leads to a reduction in the
overall social benefit of consumption. If the cigarette consumer only
considers their own private costs and benefits, then there will be
over-consumption of the product. Ideally, the socially efficient level of
cigarette consumption will be lower (Q2). The issue is really which
policies/strategies are most appropriate in reducing the total level of
cigarette consumption!
|