The assignment is based on the economic concept of negative externalities. A negative externality can be defined as a cost that is incurred to the third party as a result of an economic transaction. The assignment is based on the case study of China’s policy for implementing the carbon tax. This way of China’s government has taken a positive step towards dealing with the negative externality–pollution and greenhouse gas emission. Later the assignment covers the other steps that must be considered by the government of China to deal with the problem and reduce the impact of negative externalities.
Negative externalities can be explained as an action of certain products on consumers that have the direct or indirect negative impact on the third party. Negative externalities are concerned with the effects on environment due to product ion or consumption of a certain product (Williams, 1997). For instance, the most common negative externalities are air pollution, noise pollution, land pollution, water pollution and systematic risk.
The negative externalities are generally defined as a cost that is incurred by the third party due to some economic transaction. In this economic transaction, producer and consumers are the first and second party respectively, and third party consists of individuals, organizations, resource or any property owner who are indirectly affected with the economic transaction (Robson, 2007).
Negative externalities normally take place in the situations where the property ownership of the assets and resources are not properly allocated and are indecisive (Garnaut, 2008). For instance, there is no owner of the oceans or the forests on the earth, so anyone can pollute them with no any fear of getting sued by the owner.