Describe a negative externality of consumption and explain a method the government can impose to reduce it. Give examples.

A negative externality of consumption is when the consumption of a good or service results in negative effects to the third party. An example of this is smoking cigarettes. The consumption of a cigarette is enjoyed by the single consumer, however the people around the user might feel irritated by the smoke. Furthermore, the smoke from cigarettes pollutes the supply of air. An increase in smoking can reduce the supply of clean air in the long-run. To correct this, the government can impose a tax on the consumption of cigarettes. This tax will increase the price of cigarettes, and according to the law of demand, an increase in price leads to a decrease in quantity demanded.

RG
Answered by Riccardo G. Economics tutor

9710 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

Explain why a profit-maximizing monopolist would never choose to operate on the inelastic portion of its demand curve


Explain why a perfectly competitive firm will make normal profit in the long run.


Evaluate the possible impact on economic performance that may result from a government decision to bring cost-push inflation under control. (15 marks)


What is the crowding out effect and what does it mean for how effective fiscal policy is?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning