Microeconomics Coursework †Minimum wage Essay

Negative externalities atomic number 18 the undesirable effects of the consumption or production of a good on outsiders (individuals or firms) that atomic number 18 not accounted for in the private market (market for private firms and individuals) and are in that locationfore called spillover effects. For example in the eccentric person of baccy, the negative externalities are health and are risks to the users and the people around them, pollution of the touch areas, addiction etc. It is a pillow slip of market failure. Market failure is when a market works badly or is absent completely. In this case, the market is overproducing baccy therefore it is a market failure.This indicates that the cordial expediency is less than private proceeds i.e. welfare to individuals. This can be shown in the market diagram for baccy.Market for tobacco showing negative externalitiesQuantity of tobacco (hundreds of tonnes)MSB is the marginal affable benefit (social demand). It is the dema nd curve showing social demand for tobacco. MPB is the marginal private benefit (individual demand). The vertical distance between the devil demand curves is the negative externality, i.e. P3-P2. When MSB = MPB, there is no market failure as the good is not being overproduced anymore. therefore to decrease the negative externality, it must be incorporated into the price, thus decreasing the sum demanded to equal the MSB equilibrium step (Q1).Tobacco is thus a faulting good1. It is not only supplied in the melody of cigarettes but also in the haoma of tobacco pouches that can be use in roll-up cigarettes. Consumers are switching from cigarettes to roll-ups because the impose on tobacco pouches is less than that on cigarettes.The UK government has levied an average tax of 75 90% on a big bucks of cigarettes whereas the tax on roll-up tobacco is on the dot below 70 percent. integrity solution to reduce the consumption of tobacco is to increase the tax on tobacco as a whole instead of on cigarettes or tobacco pouches. The translate will therefore shift to the left. This is shown in the diagram below.