Negative Externalities Of Dairy Production

This graph above shows negative externalities of production of dairy production, at the market equilibrium, being where Qm=Pm, dairy production is underpriced and over produced. This is because at the market equilibrium, spillover costs to third parties are not taken into account. These spillover costs to third parties such as water pollution are taking into account at the Marginal Social Cost curve along with all other costs to the producers. The per unit cost of these negative externalities are shown above, this being the distance vertically from the marginal cost curve and the marginal social cost curve. At market equilibrium there is a market failure occurring, this is due to producer and consumer surpluses not being maximised and a deadweight …show more content…
As farmers are now required to pay tax on every cow which they use for dairy production, they will need to increase the price which they sell it to consumers at. This would mean that there would be a lower amount demanded by consumers, following the law of demand. Reducing output even more. This is because producing at a high output is not affordable as they do not have the quantity demanded to match it. This policy therefore does what is was developed for, reducing output and increasing the amount that consumers pay to receive dairy products. This therefore removes spillover costs to third parties and makes the market more efficient. Now at this sustainable and socially desirable market, means that the government and the farmers themselves can be less worried about the land which they are using for dairy production. This is because there would now be a lower chance of erosion and lower amount of nitrogen leaked into nearby rivers and streams, making it safer for everyone. This tax does not need much oversight means that there is a greater amount of tax received to the amount spent by the government, meaning that this policy is quite efficient as it does not take much money spent by the government, most likely a good thing for the …show more content…
Both policies are unequitable to people who are currently doing their own efforts to stop environmental factors such as nitrogen leaching. Both are also unequitable on the producers and consumers as they will now have less disposable income to spend on things other than dairy products due to the higher prices. The government is negatively impacted for the regulation as they will most likely run on a deficit for this policy. Whereas for the emissions tax the government would be running on a surplus most likely. This extra money could be spent on things such as healthcare, education or future protection of land due to dairy farming.

Combining the more efficient policy and more equitable policy, I have concluded that implementing an emissions tax policy on methane gas emission would be the most effective way to remove negative externalities of production on dairy