Externality: Theoretical Framework
“Market”, in economics, refers to a forum of interaction between the demand and the supply side forces for different goods and services, where, the mutual interaction and agreements between them (the buyers and the sellers) lead to decisions regarding the quantities of commodities or services to be produced and the price levels for the same (Frank & Cartwright, 2013).
However, often in the free market situation, the allocations of goods and services are not efficient and the benefits are either accrued more by the buyers or the sellers. This, in terms of economics, is known as market failure. There are various types of market failures, which occur in real world scenario, of which one of the most common form is that of externalities (Iossa & Martimort, 2015).
Keeping this into consideration, the concerned essay tries to analyse the effects of vulgar graffiti which are sprayed on the roads and the footpaths of the South Street, with the help of the conceptual framework of externality in economics. The essay also tries to discuss the possible solution and policies which can be implemented by the government of the concerned region, in order to mitigate the problem of externality arising out of the said phenomenon.
The term “externality”, in economics, refers to the impacts or effects which the production or consumption of certain commodities or services, have on third parties, who are not directly related to or involved in the production or the consumption of the same (Hall & Lieberman, 2012). When the production or consumption activities for certain commodities or services, benefits or increases the welfare of a third party who is not associated directly with the transaction, then the same is said to be positive externality (Barr, 2012).
In case of positive externality in production, the social marginal cost of production is lower than the private marginal cost of one additional unit of production of the commodity, which can be seen as follows:
Figure 1: Positive externality in production
(Source: As created by the Author)
Thus, it can be seen that in case of positive externality in production, the socially optimal level of output is higher than the level of output produced in the free market situation. The converse happens in case of negative externality in production, where the marginal cost borne by the society for one additional unit of production of a commodity is higher than the private marginal cost. In this case, the socially efficient amount of production is less than the free market level (Pigou, 2017).
In case of positive externality in the consumption of a commodity or service, again, the social marginal benefit from consumption of one unit of the same is higher than the private marginal benefit, the effects being as follows:
Figure 2: Positive externality in consumption
(Source: As created by the author)
The converse happens in case of negative externality in consumption, where the social marginal benefit of an additional unit of consumption is less than the private marginal benefit, thereby leading to a situation where the free market level of commodities or services is higher than the socially optimal level of the same (Riley, 2012).
Externality in case of vulgar graffiti on the South Street
Externality in case of vulgar graffiti on the South Street
In the light of the above discussion, the phenomenon of vulgar graffiti sprayed on the roads and footpaths of the South Street can be explained. Graffiti, in general, being an art form, can have both positive or negative externalities, depending upon the perceptions of the people who see those graffities while passing by the area or on whose property these graffities are sprayed (Mahanty, 2014).
However, in the concerned case, the graffiti which are being sprayed on the roads and footpaths of the South Street are vulgar and thus, the same are expected to be causing disturbance to both the viewers as well as the municipalities of the concerned region, who has to shell out considerable amount of money to clean-up these vulgar graffiti. Thus, the societal cost of spraying of vulgar graffiti on the roads and footpaths of the South Street region, is much higher than the private costs of the colours which are bought to paint the same (Feiwel, 2016). Some of the social costs like those of the costs of cleaning up and re-painting the roads are numerically measurable, while the costs like those of irritation and disturbance of the viewers and the harassment of the municipality of the region cannot be numerically measured:
Figure 3: Negative externality of vulgar graffiti
(Source: As created by the author)
Thus, the socially optimal level, in this case, is lower than the free market level which is existing in the current situation.
Policy solutions for the government of the South Street
The negative externality arising out of vulgar graffiti can be seen to be monetarily affecting the municipality of the region, as they need to pay for the clean up of the vulgar graffiti in order to reduce the disturbances and harassments caused by the same to the people who are viewing those graffiti. To reduce this negative externality, the government of the region can impose strict fines on those who have been creating the graffiti and if needed can also impose non-monetary punishments like that of jailing the ones who have been creating these vulgar graffities. The money earned from the fines and penalties imposed on them can be used by the municipalities to clean up the roads and footpaths and can also be used to employ security personnel who can be bestowed with the responsibility of keeping a vigilant eye on such activities and arresting the ones involved in the creation of vulgar graffities (Friedman, 2017). The effects of imposition of fines and monetary penalties can be seen as follows:
Figure 4: Effects of imposition of penalty or fine by the government
(Source: As created by the author)
Thus, the imposition of fine by the government, can help in reducing the number of vulgar graffities on the roads and footpaths of the South Street due to the increase in the cost of creating such graffities on part of those who are doing it. The fear of being jailed can also reduce the number of vulgar graffities (Davies, 2012).
Conclusion
From the above discussion, it is evident that in the contemporary period, one of the most common forms of market failure is that of externality, which can be positive or negative. In the concerned case, the phenomenon of vulgar street graffities can be seen to be causing negative externalities to the society and the municipality of the concerned area, who has been bearing the costs of the same. This can be reduced by the government of the concerned region, by imposing strict monetary penalties and fines as well as non-monetary punishments, which on one hand will help to reduce the number of vulgar graffities and on the other hand will help the government to use the money collected from penalties and fines to clean up the streets and to employ security personnel for reduction of the number of such incidents in the future.
References
Barr, N. (2012). Economics of the welfare state. Oxford University Press. Retrieved from: https://s3.amazonaws.com/academia.edu.documents/31131723/CH001098321861B59CF9BC125714F003A71CA.pdf?AWSAccessKeyId=AKIAIWOWYYGZ2Y53UL3A&Expires=1537947225&Signature=rdnBOxhQ9JeGzMroPVfVlleL8bE%3D&response-content-disposition=inline%3B%20filename%3DThe_economics_of_the_welfare_state.pdf
Davies, J. (2012). Art Crimes: Theoretical Perspectives on Copyright Protection for Illegally-Created Graffiti Art. Me. L. Rev., 65, 27. Retrieved from: https://digitalcommons.mainelaw.maine.edu/cgi/viewcontent.cgi?article=1135&context=mlr
Feiwel, G. R. (Ed.). (2016). Arrow and the ascent of modern economic theory. Springer. Retrieved from: https://pdfs.semanticscholar.org/5fdd/2e292a3130755156fd06749590fab77914b1.pdf
Frank, R., & Cartwright, E. (2013). Microeconomics and behaviour. McGraw Hill.
Friedman, L. S. (2017). The microeconomics of public policy analysis. Princeton University Press.
Hall, R. E., & Lieberman, M. (2012). Microeconomics: Principles and applications. Cengage Learning.
Iossa, E., & Martimort, D. (2015). The simple microeconomics of public?private partnerships. Journal of Public Economic Theory, 17(1), 4-48. Retrieved from: https://bura.brunel.ac.uk/bitstream/2438/3459/1/0903.pdf
Mahanty, A. K. (2014). Intermediate microeconomics with applications. Academic Press.
Pigou, A. (2017). The economics of welfare. Routledge.
Riley, J. G. (2012). Essential microeconomics. Cambridge University Press. Retrieved from: https://www.cartestraina.info/uploads/9780521827478_frontmatter.pdf
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