Pollution, congestion and noise are all forms of disamenity. They are known to economists as ‘negative externalities’. An ‘externality’ in economics refers to a cost or benefit created by an economic agent (such as a business firm or individual consumer) whose effects are felt outside the sphere of operations of the agent itself. A consumer who buys and consumes petroleum products for his car pays for the direct costs of their production at the time he makes his purchase; these costs, which are, of course, costs incurred by society in meeting his demand are met from his own income and are therefore regarded as ‘internal’; they would contain an ‘external’ element only if, for some reason, the price paid per gallon was less than the true extra cost of producing an additional gallon. But, at the present time, the consumer is not generally asked to pay in cash for the costs he imposes on society when he pollutes the atmosphere in the course of consuming this product.2 Such costs are therefore called ‘external’. When the government regulates emissions, forcing the consumer, producer or both to pay for control devices, the costs can be said to have been ‘internalized’.
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