Externalities

Externalities

Week 1 Assignment – Externalities

Suppose the U.S. government (Federal Agency) determines that cigarette smoking creates social costs not reflected in the current price of cigarettes in the market. To this end, a study recommends that the government can correct for the social cost (externality) by paying farmers not to plant tobacco used to manufacture cigarettes.

Assuming that the government is correct that cigarette smoking creates external costs; prepare a three-page paper (not including the title and reference pages) that evaluates the study’s recommendations mentioned above.
Start your paper with an explanation of externalities (positive and negative) and why society’s costs and benefits are not always reflected in the market. Describe how markets fail to allocate the appropriate amount of resources. Your responses need to consider the different perspectives of the stakeholders.
Format your paper according to APA style guidelines and use at least two scholarly sources.