Quiz 4: Pollution Problems: Must We Foul Our Own Nests


Smoking is a clear example of how the private consumption of a product can sometimes outweigh the social well-being. For each cigarette that is produced, a little bit more of social well-being is potentially being sacrificed. As with paper, the cigarette market is not required to bear the full cost of producing cigarettes. A portion of this cost gets passed onto society in the form of potential medical treatments for those with respiratory ailments from secondhand smoke, funeral arrangements for those whose loved ones have died from secondhand smoke, and so forth. Because this cost is ever present, we say that social well being for cigarette production is below its optimal level. Thus cigarettes are undergoing overproduction. Since the demand for cigarettes tends to match the production levels, cigarettes are said to be products of overconsumption as well.

There are instances where the production of a good or service spills over beyond its target consumers and affects one of more third parties. This change can be positive or negative to the surrounding society. When such effects or changes take place, they are known as externalities in consumption. Smoking is one well known negative externality agent. The smoke given off by the cigarette and exhaled by the smoker can make breathing unpleasant for those who happen to be nearby (secondhand smoking). This is exacerbated if the surrounding individuals have breathing or respiratory ailments. A more positive example might be a public art gala or festival. While this is generally erected to appeal directly to art lovers, other members of the general public have the ability to stop and admire the works of art on display; some may even be inspired to create their own work because of it.

Sometimes the production of one good or service leads to changes in the production cost of other goods or services. The production of hybrid vehicles, for instance, leads to a decrease in the cost of gasoline-fueled vehicles as car dealers attempt to sell them off of their lots and manufacturers produce them in smaller numbers compared to the newer hybrid vehicles. Instances such as this are known as externalities of production. The above example could be seen as positive, since it could cut down on the pollution emitted by pure gasoline vehicles. On the other hand, digging for oil or natural gas or deforesting a certain area could undermine its value either as residential property or as farmland.