Results In Negative Externalities. NEGATIVE CONSUMPTION EXTERNALITIES Negative consumption externality. Negative production externalities occur when the production process results in a harmful effect on unrelated third parties.
Some examples of negative production externalities include. For example manufacturing plants cause noise and atmospheric pollution during the manufacturing process. Smoking results in negative effects not only on the health of a smoker but on the health of other people.
For example a steel producing firm might pump pollutants into the air.
When external costs are inflicted upon third parties outside the market the result is that private costs end up being less than social costs. The optimal production quantity is Q but the negative externality results in production of Q. Smoking results in negative effects not only on the health of a smoker but on the health of other people. In most cases externalities result in a market failure that can only be avoided by imposing some sort of regulation to internalize them.