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What are Externalities?

Questions:

1.The Nature of Externalities and Explain the difference between a Positive and a Negative
externality.

2.Why Australian Governments would Intervene in the Market for dogs using Externality Theory.

3.One type of Intervention that the Australian Governments can use to Encourage Dog Ownership.

4.Show on a Correctly labelled supply and demand diagram the private market for dogs. Then Show the Effects of the Government Intervention on Quantity traded and Price.

Externality

In the context of economics, an externality refers as the cost or profit that has an impact on a party who did not select to acquire that cost or else benefit. In other words, an externality is a cost or benefit that is only inflicted on a third party or person, for example society, people, etc. But, an externality does not affect the producer as well as consumers of a good and service. It only influences an economic side of a nation (Ajefu & Barde, 2015). Along with this, an externality does not fully reflect prices of goods or services. It is measured as a form of market failure. Moreover, the benefit or cost that is related to an externality is not used as a part of decision making to perform an economic activity in an effective manner.

On the other hand, positive externality and negative externality are two major types of an externality. A positive externality refers as the benefit and a negative externality refers as the cost that is allied with the production as well as expenditure of a product and service. Moreover, there are numerous differences between these two externalities. For case, the major difference is that a positive externality points towards the benefits; while a negative externality is a sign of the costs. The other difference is that a positive externality motives to producers to produce less products to earn profits (Moss & Schmitz, 2013). But, a negative externality motives to producers to manufacture a lot products to compete the competitors. As a result, a negative externality increases the costs and also reduces the benefits of the producers.


In addition to this, public goods such as: clean air & water, national defense, law enforcement, and so on are the major examples of a positive externality. But, pollution is considered as a more common example of a negative externality. It is because of in the situation of pollution; the society will bear the costs because of it will affect the environment negatively (Mason, Muehlenbachs & Olmstead, 2015). Along with this, a positive externality provides benefits to all the people of society including producers and consumers too. Apart from this, a negative externality imposes some sort of costs on the third parties those are not involved in transactions or do not buy any good or services form the buyers or manufacturers. In this way, it can be assumed that, an externality subsists in a situation in which a third party earns a benefit or cost by reason of a transaction (Feng, Wang & Zhang, 2014). Moreover, the benefits and costs associated with an externality create two types (positive and negative) of externalities.

Positive Externalities vs Negative Externalities

It is true that, in recent years, most of the nations are focusing on pet industry to improve the economy of the nations. It is because of according to the research, the revenues of pet industry increased even at the time of economic troubles and great recession also. Along with this, dogs have become the most popular pets to the people instead of other animals. So, the government of each and every nation is emphasizing its attention mainly on the dogs market (Anomaly, 2015). In addition to this, the Australian government also decided to intervene in the market for dogs due to several reasons. For case, the major reason behind it is that, there can be seen a regular growth in the Australian market for dogs. The below graph is helpful to show growth in the dog market of the nation:

(Source: DOG WALKERS Melbourne. 2017)

On the other hand, the other reason of the intervention is that, in current, people are becoming crazy to have pets in their homes. It will improve the economy of nation effectively. On the basis of the above graph, it can be seen that, the Australian people more search for dogs on the internet. Along with this, in today’s technological era, the online market of dogs has been grown fabulously. This is also the other reason of the involvement of the Australian government in the market for dogs (DOG WALKERS Melbourne, 2017). The below graph is useful to show ‘Dogs’ search growth:

(Source: DOG WALKERS Melbourne, 2017)

In addition to this, the Australian government will also use externality theory to make its intervention in the market for dogs. According to this theory, the dog market will be beneficial for the both seller and buyer. It is because of with the help of this, dog owners who are unable to provide substandard products, proper environments, and superior services to their pets would be able to earn effective costs of their pets. Apart from this, pet lovers who can provide all the superior facilities to their pets would be able to buy their preferred pets from the owners (Nestle & Nesheim, 2010). Moreover, as per the externality theory, the intervention of the government will be beneficial to all the parties those are involved in the trade of dogs. It is because of it will inspire a fair trade in the nation. As a result; it can be said that, the Australian government will be involve in the market for dogs only by using externality theory.

In the area of economics, direct provision, subsidized provision, and regulation are the three major types of intervention. In the direct provision intervention, the government can supply superior products or services directly to consumers without any cost. Along with this, in the subsidized provision intervention, the government of a nation pays a part of the amount for a product or service; and also asks to consumers to give the rest amount (Westgarth, Christley & Christian, 2014). Moreover, in the regulation intervention, the government of the nation can give provision to the private sector and also oblige them to provide merit goods as well as services to consumers.

The Intervention of the Australian Government in the Dog Market


On the other hand, the Australian government can use regulation intervention to encourage dog ownership within nation. There are numerous reasons behind it. For example, the major reason is that the regulation intervention will promote free trade in the marketplace. Moreover, in this intervention, seller would not be obliged to pay only small amount as tax to the government. Consumers would be able to buy their preferred goods or services; and would also be ensure the productive competence in an effectual manner (DOG WALKERS Melbourne, 2017).

In addition to this, regulation intervention will inspire Dog ownership by providing superior dogs to the buyer. They are not bound to follow strict rules and regulations to trade in the market. Moreover, the dog owners would also be free from taxes.  Apart from this, the other interventions may increase the costs of the dogs and also may reduce the benefits of the owners. It is because of in the other types of the interventions either the government will provide goods free of charge or will pay a part of the total amount. In this situation, the dog owners would not be ready to sell dogs without benefits; or they may also increase the costs of the dogs (Powell & Powell, 2016). Consequently, regulation intervention must used by the Australian governments to encourage dog ownership within nation.

In recent years, the supply and demand of dogs has been increased. Most of the people prefer dogs instead of other animals. Along with this, the below supply and demand diagram is helpful to show the increased demand and supply of dogs properly. It also shows that people search and demand for dogs than cats.

(Source: Hartmann, 2010)

On the other hand, the below supply and demand diagram is also valuable to illustrate the increased supply of dogs in the past years:

(Source: Hartmann, 2010)

Therefore, it can be assumed that, the private market for dogs is growing quickly. The demand and supply of dogs is also more than any other animal.

On the other hand, the government intervention also has positive effects on the quantity traded and price for dogs. It is because of the government intervention in the private market for dogs will encourage the sellers to provide preferred dogs to buyers. They are paying adequate amount of money for their desired dogs. Along with this, the government intervention will also be helpful to control price factors effectively. Sellers would not be able to charge high amounts from the buyers. Moreover, it will also manage the demand and supply factors appropriately (Westgarth, Christley & Christian, 2014). In this way, the government intervention will affect quantity traded and price for dogs in a positive manner.

References

Ajefu, J., & Barde, J. (2015). Market efficiency and government intervention revisited: What dorecent evidence tell us. Journal of International Business and Economics, 3(1), 20-23.

Anomaly, J. (2015). Public goods and government action. Politics, Philosophy & Economics, 14(2), 109-128.

DOG WALKERS Melbourne (2017). Home » Articles » Dogs Industry long term online search trends Australia, America, UK – 2. Retrieved From: https://www.dogwalkersmelbourne.com.au/articles-dog-walking-pet-sitting/51-dogs-industry-long-term-online-search-trends-australia-america-uk-2

Feng, S., Wang, D., & Zhang, X. (2014). Study on Ecological Compensation for Coal Mining Activities Based on Economic Externalities. Journal of Geoscience and Environment Protection, 2(02), 151.

Hartmann, M. (2010). The Supply And Demand of Internet Dogs And Cats. Retrieved From: https://jezebel.com/5703616/the-supply-and-demand-of-internet-dogs-and-cats

Mason, C. F., Muehlenbachs, L. A., & Olmstead, S. M. (2015). The economics of shale gas development. Annu. Rev. Resour. Econ., 7(1), 269-289.

Moss, C. B., & Schmitz, A. (2013). Positive and negative externalities in agricultural production: the case of adena springs ranch. Journal of Agricultural and Applied Economics, 45(03), 401-409.

Nestle, M., & Nesheim, M. (2010). Feed Your Pet Right: The Authoritative Guide to Feeding Your Dog and Cat. USA: Simon and Schuster.

Powell, R., & Powell, J. (2016). AQA Economics Student Guide 1: The operation of markets and market failure. UK: Hachette UK.

Westgarth, C., Christley, R. M., & Christian, H. E. (2014). How might we increase physical activity through dog walking? A comprehensive review of dog walking correlates. International Journal of Behavioral Nutrition and Physical Activity, 11(1), 83.

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