China+Battery+Plant+Poisons+more+than+100+Villagers+Shinyoung

China Battery Plant Poisons more than 100 Villagers Reuters http://www.reuters.com/article/2011/03/25/us-china-battery-plant-idUSTRE72O6S220110325 Fri Mar 25, 2011

In the village near Taizhou city, 139 villagers were found to be lead poisoned; nearby battery plants are accused for these happenings. This is an example of Negative Externalities of Production. The leftovers of lead, that was used in the production of batteries, were released into the atmosphere and the water. And the villagers, who consumed agricultural products that were watered by these lead-polluted water, ended up with lead poisoning. In addition, from now on, farmers, whose crops are growing near the battery plant, would have monetary loss, since the government recommended people not to consume agricultural products raised near the battery plant. This would result in an externality cost of villager's hospital fee and farmer's loss of profit. Thus the Marginal Social cost would be greater than the Marginal Private cost that the battery company had originally payed. However, in order to maximize it's profit, the Battery Company would only consider the basic cost of producing the batteries. And would sell many batteries (Q1) in a cheaper price of P1. However, considering their negative effects, the batteries should be produced in a reduced amount of Q2, at a higher price of P2. Currently, the government has temporarily shut down the battery plant

Market Failure : A given market situation when allocation of good and services are not provided or consumed in the optimal amount. Externalities: A cost that a third party has to pay, even though it is not engaged in the act of production or consumption of the good or service Internalization of Externalities : Changing the private cost so that it would be equal to that of the social cost. Marginal Social Cost: The total cost of the society when producing a unit of good or service. (MSC) Marginal Private Cost: The private cost for the company when producing a unit of good or service (MPC) Marginal Social Benefit: The total benefit of the society when consuming a unit of good or service ( MSB) Negative Externality of Production: The production of a good or service creates a negative externality to the society that the MSC is greater than MPC Profit : Financial benefit which can be calculated by Total revenue - total expense

As it is mentioned in the article, "Production has now been halted and will not be resumed until the pollution issue is fixed, Xinhua said." the government has temporarily closed down the Battery plant. However, this is not a recommended action. The halt of the production would mean that the factory would not be running for a while and it would not need any employees to run the factories. Then many people in the village would be unemployed and would not be able to support their family economically. Then the family would be more stringent in using their money, and the whole village economy would be effected as a whole. One alternative action that the government can take is taxing the production of batteries. As the cost of production increases, the MPC curve would shift to the left, and with the right amount of tax, the externality would be internalized. However, this would not solve the pollution problem that is happening in the village. A more recommended solution is the government passing a legislation on banning lead release. Then the company would have to introduce a new technology to purify the atmosphere and the water to be lead-free, and implementing these new technology would cost money. Thus, the MPC curve would shift to the left and would meet the MSC curve. Likewise, less pollution would occur and also the village environment would improve.