Would the high price of milk affecting the chocolate companies be considered a negative production externality? or a negative comsumption externality?
2007-10-22 16:44:27 · 2 answers · asked by Serious Sal 1 in Social Science ➔ Economics
Neither. A negative externality, either consumption or production, will cause the product to be overproduced. By definition, a negative externality means there is a cost that is not bourne by someone who is not directly involved in the manufacture or consuption chain. So, either the good is cheaper to produce or cheaper to purchase. Either condition causes the supply/demand curve to shift to the right meaning overproduction. I'm not sure that the high price of milk would lead the overconsumption of anything. However, farming cows creates externalities in the form of excess methane gases and pollution.
2007-10-22 18:20:51 · answer #1 · answered by Chuck B 2 · 0⤊ 0⤋
It is a negative consumption externality because there will be less consumption of chocolate for chocolate milk. This is because milk and chocolate are considered complements.
2007-10-22 16:57:00 · answer #2 · answered by Toot 3 · 0⤊ 0⤋