Negative externalities of consumption is where the consumption of a good may have spillover costs or negative externalities for others e.g. passive smoking, drink driving, sugary drinks. If left to the free market goods that have negative externalities of consumption will be under priced (Pm) and over consumed (Qm) compared to the socially desirable price (Ps) and quantity (Qs). At Qm the MSC > MSB therefore the quantity needs to reduce until the MSC=MSB. The government could tax the good, increasing its price and lowering the level of consumption back to more socially desirable levels.
Coke and how much sugar?
The video clip below, although a bit old, is from the BBC Newsnight Programme in which Jeremy Paxman interviews President of Coca Cola Europe James Quincey. How much sugar is in a cup of Coke? A ‘small’ cinema serving is said to contain 23 teaspoons on sugar, while a large contains 44 – ‘each to be consumed in a single sitting.’ You can see the amount of sugar for yourself when Paxman pours out the sachets in each cup. Like with the tobacco industry quite a few years ago, the pressure is now on drink companies to reduce the amount of sugar in drinks because of the negative externalities of consumption that are associated with it.
Externalities on elearneconomics has written answers that allows students to recall information and apply it to assessment style questions. Immediate feedback allows for true student-centred learning and understanding.