Research Essay

A. Negative externalities, the case for government intervention

In the views of Bond & Goldstein (2015), the concept of the negative externalities represents the negative impact on the public resource due to economic subjects and activities of human beings. It also includes the commercial products that are produced corresponding compensations.

The concept of negative externalities can be understood by the example such as a homeless person is sleeping in the corner of the park. Due to this is a public resource, the person has not to need to pay rent. At the same time, there is also no regulations and rules that can be applied to punish to person.

It is destroying the environment of the park and affecting the sustainability of the park negatively. Therefore, this person is not only affecting the environment of the park, but also affecting other persons in the park. This example can be considered as negative externalities but, it is not related to the economic.

There is quite a requirement of the intervention of the government to overcome this kind of situation. It can be seen that people use public resources and goods, but, it is their liabilities to pay the cost for the consumption of the funds. The government should determine the standard for the use of public resources (Asche et al., 2016).

At the same time, the people and other entities should also concern the use of sustainability of the funds. In the condition of lack of government intervention, the situation of the negative externalities can be seen. Hence, it can be said that the lack of government intervention to prevent commercial activities leads to negative externalities.

According to the establishment of the rules and regulations in the context of the taxes and charges can be helpful to prevent the negative externalities. It means that activities that lead to the event of the negative externalities should pay more fees and fees. Overcoming the issue of this kind of behavior will be helpful. For example, hot environment pollution can be considered. It is a universal concept that vehicle emission creates greenhouse gas.

Therefore, the government should determine the vehicle consumption tax based on automobile displacements. In the context of the small-displacement vehicles, the customer should pay the less tax as compared large-displacement vehicles. This kind of control can be helpful to control the behavior of negative externalities. Hence, people and companies should consider whether their actions and activities should continue that leads to negative externalities.

As discussed in the above information, individual and companies will take decision according to cost-benefit analysis. In this, if the cost will find more than benefit, then it will lead to negative externalities (White et al., 2013).

There is also another way in which the government can use the fund of the taxes and charges to renovate the public resources that are destroyed due to negative externalities.

In this, it can be suggested to the government that it can use the automobile tax in the protection of the environment and clear the environment. On the other hand, there are some difficulties that can affect the government to apply the tax strategy. For example, it can be difficult for the government to define the relationship between tax level and displacement. A misbalance can be the cause of everyone dissatisfaction.

At the same time, it is found that an increase in automobile taxation can lead to a decrease in the sale of the automobile industry that can also prevent the growth of the industry. Therefore, the intervention by the government as increasing the taxation rate can affect the social and economic growth (Bennett, 2012).

B. A case study of externality exists in a current market and its effect of externality on market

Externalities are not only presented in the economic, but it can also be seen in other areas such as tourism. In the development of the tourism industry, the government involved with the companies to attract the more tourist. The main aim of this activity is to to develop tourism activities better and improve the sport.

In this, it has been seen that the tourism industry has achieved growth, as well as companies, have been successful in increases the sales and customer bases. However, there are some companies that are overdeveloped the scenery sport that leads to negative externalities (Dunnett, 2013).

For example, in China, there is a famous mountain that is known as with the name of Huashan.  With the purpose of managing and organizing the travel activities, the government of China developed a travel group as Shanxi Huashan travel Group Company in 1996.

This group was responsible for managing the travel activities and improving and sustaining the Chinese culture in Shanxi province. In the starting year, the group was performed well at the time when the travel was not much famous that included the different activities such as protecting the sports activities, attracting the more travelers, and managing the sustainability practices of the environment.

In the year 1999, the action of the government to the establishment of the golden travel week system helped to increase the number of travelers. In this, it was found that all the sports were full during the golden week of travel.

Shanxi Huashan travel group realized challenging to manage the golden sports travel with managing the travel development. It is because a lot of the case found in which, the seller in the sport were cheating with the customers and leading the issue for the sustainability of the environment. In this, the main problem was found as theft.

During the golden travel week year, it was also noticed that a bowl of the rising was sold out equal to 15RMP in the Mountain Huashan hotel. There was only one hotel in the area of Mountain Huashan. Therefore, the negative externalities are recognized in Mountain Huashan hotel (Rahwan et al., 2012).

According to this case study of Mountain Huashan, externality plenty brought regarding throughout the procedure of travelling. While the industry of tourism relies on natural, environmental, tourism and environmental resources, and cultural resources can be seen as two sides of the similar coin. When tourists compensate a visiting to Mountain Huashan, this is predictable to disrupt the natural environment of the mountain (Bernini, 2016).

In the peak season of tourist, it is possibilities that some visitors spot is overload, adverse effects may on the environment in terms of creating pollution, dumping wastes, damaging environment, spoiling the atmosphere and the like that would source costs of environmental (Sing, 2018).

The costs of environmental are too nonfigurative to approximation, but it can be determined as loss of dead weight as the following diagram. The blue area shows the loss of dead weight sourced by costs of environmental.

Each of these negative externality must be controlled by the government; in case of Mountain Huashan, this negative influence must be controlled by Shanxi Huashan travel group organization. Behind this all, the suppliers of tourism depend upon the ecological, environmental, and natural aspects overcome in a similar place.
Negative externalities

In instruct to manage each interest of the visitors in Mountain Huashan, different procedures are taken into impacts by Shanxi Huashan travel group organization. The most essential is to restrict the visitor’s numbers in place of Mountain Huashan (Sing, 2018). The new significant rules are increasing the numbers of 100 thousand travellers visiting the mountain place every day.  The organizational capabilities of the management group play an essential part.

Even there are fewer travelers travelling around the mountain; if the control teams can’t handle entire duties of cleaning the spot scenes in moment, functioning out the sudden condition well, the travelers place environmental is also not in good preservation. At present, Shanxi Huashan travel group organization claimed the management teams are qualified and trained supervision the visit areas (Chen, 2019).

Other negative externalities in Mountain Huashan of tourism are the security issues. A few of the significant well-known tourist zones, Mountain Huashan, face theft and another crime. This is supposed that area of tourist tends to have huge costs of crimes than non-tourist ones in the long and short run.

While Mountain Huashan scenes place can’t protect to the thief, this is of the high requirement for the government to endorse rules to restrict the crime. Newly, lots of places in the mountain is installed the CCTV (Closed circuit televisions), so as to catch the scenes of crimes in all areas. Shanxi travel organization claimed that after the installation of CCTV, the theft numbers are minimized.

Additionally, in order to catch the thieves in the period, Mountain Huashan enhances the security numbers both in the visiting places, and recruit additional securities of the public (Bernini, 2016).

In all, in instruct to diminish the adverse effects that externality bring to visitors, the government has to discover out efficiently way to address the shows of the position in the marketplace.

Regulation and taxes are essential to process to ratify to usual firms and individuals behaviors towards the visitors. Clear lists of laws or regulations must be knowledgeable to those firms or individuals associated. Throughout the journey, if the sellers or individuals in the tourist’s spot violate the offering higher cost, rules, involving littering, the proper changes are waiting for them.

Under a few examples, when regulations and changes are not appropriate to utilize, in fields of economic, changes the marketplace structures is the additional procedures to smash the deadlock of the marketplace of the organization (Sing, 2018).

C. Suggest other options for dealing with negative externalities in your case study

There are various ways that can be helpful to overcome the issue of negative externalities. These methods and ways are also helpful in maintaining the sufficient balance between the cost and benefits. The research study of Demir et al., (2015) suggested that in order to the growth of the tourism industry, it is essential to improve the quality of service under the industry.

At the same time, it is also essential to improve the other strategies and planning that can be helpful to improve the tourism industry. In the context of Mountain Huashan, the company is established with the aim of the overall improvement in the tourism industry project.

Even though, it is found that when the tourism industry was growing, Shanxi Huashan travel group company was unable to follow the steps of the growth of the industry. Hence, it can be recommended to Shanxi Huashan Travel Group Company that it should provide organize the training and development program for its employees and staff members.

In order to overcome the issue of negative externalities, it is essential to step to train the employees and develop their skills and knowledge. To develop the training and development strategy, the focus of the Shanxi Huashan Travel Group Company should on protecting the environment (Wood & Sullivan, 2015).

It will be helpful for Shanxi Huashan Travel Group company to develop a culture in which each employee will be dedicated to the protection of the environment and prevent the negative externalities. In addition, it is also suggested to the company that it should teach the employees the importance of sustainable business practices.

At the same time, it can also be suggested that Shanxi Huashan Travel Group Company should also prepare and implement an effective strategy that can increase the engagement of the employees in the training program and overcome the negative externalities.

According to Dröes & Koster (2016), since talent is one of the active competitive players for a company. In this way, the strategy of the company in the context of training to employees will also be competitive players for the company. It will be helpful for the company to achieve more revenue and increase the customer base.

It can also be suggested to Shanxi Huashan travel group company that it should also focus on the learning of the employees in the reference of cost-benefit analyze of tourism spots. It will improve the competencies of the company and employees. Therefore, the company will become able to handle the negative impact that externalities bring to tourism more effectively (Giannetti et al., 2011).

At the same time, Shanxi Huashan travel group company should also develop the essential rules and regulations that should be followed by each employee. Moreover, to Shanxi, Huashan travel group company should install the CCTV at each corner that will measure the activities of the different situation at each time.

D. Using the critical characteristics of the market structures identify the market structure

As concerning the key characteristics, there are mainly four market structures. These market structures have different feature and include a different set of decision choices. The names of the four market structure are perfect competition, Monopolistic competition, oligopoly, and monopoly.

Perfect competition

Perfect market structure is known as the most of the competitive market. It is because it includes a number of the sellers and buyer for the similar products. In this market, no single marketer has influences on the prices and market. However, the proportion of the profitability is low in the market because there are millions of firms are competing to sell their products. Hence, it can be said that in the whole market, there is lots of the sellers and buyer so that there is no single firm can affect the prices of product (Bond & Goldstein, 2015).

Negative externalities

The above diagram shows that in the perfect market structure, marginal cost and average cost curve are crossing to each other. In this situation, the MR and AR are equal that indicates to situation of the perfect completion.

Monopolistic competition,

The market structure of the monopolistic market is also very competitive. There is a lot of business opportunity for a company in this market. The seller has to convince the customers that the product is sold by the company is unique from the other seller in the industry.

For example, coca cola and Pepsi are an example of the monopolistic competition. However, both companies have enough market shares, and the pricing strategy of a company depends on another company’s pricing decision. In this, only one and few companies have control over the market because these are able to provide a unique product (Asche et al., 2016).

Negative externalities

The above graph shows the structure of the monopolistic market that is looking similar the monopoly market. In this, it can be seen that a company earn the maximum profit in the situation of the MR = MC. In this, Output Q1 and Price P1 are leading to the super normal profit.


Oligopoly market structure is a kind of market in which there are few companies selling a particular product. However, each seller can affect the product price in the market. Interdependence is one of the main features of this kind of market. In this, market, each firm is free regarding the chaining the price of the product and promotion strategy.

At the same time, it is also found that the role of the advertisement is significant to influence the customers. A firm has to face some limitation in the market when it enters the competitive such as license, but the exit of the firm is free (White et al., 2013).

Negative externalities

In the oligopoly market structure, MC is found above the MC lower. In this market, each company has aim to achieve the situation of Q1. The above diagram shows that P1 indicates to MR = MC. Therefore, a change in MC may not change the market price.


In this kind of the market, the firm is itself industry. It is because it is only a single seller in the industry with unique features. There is full control over the price of the product and service. In this market structure, the elasticity of demand is zero. In this market structure, there is a high barrier to the entry of the company. At the same time, the product selling by the company does not include a close substitute (Bennett, 2012).

Negative externalities

The above diagram shows that in the monopoly market, product and service are sold at the higher price. In this, a firm is able to seek the maximum profit by setting out in which MR = MC. Moreover, the graph also shows that AR-AC * Q.

Two different market structures are noticed in the case study of Mountain Huashan. To the Shanxi Huashan travel group company, it is in the Monopolistic competition structure. In this, it is also found that Shanxi Huashan travel Group Company has to compete in the market with Mountain Huangshan, Mountain Taishan.

However, there is a difference between the sports of both companies. In these, visitors select sports according to their interest. In this, the marketing activities of the companies attract travelers more. It is a reason there is intense competition for the Shanxi Huashan travel group company. These things indicate the situation of the Monopolistic market structure (Dunnett, 2013).

In the case study, it is also found that that Mountain Huashan hotel also sold the 15RMB bowl rice in the year that indicates to Monopoly market. It is because in the monopoly market there is and only a single seller for the product and competition is zero for the company. The sample situation is with the Mountain Huashan hotel.

Negative externalities

The above graph is showing the effectiveness of the negative externalities. In this graph, the orange line depicts the normal situation in which bowl rice is at a reasonable price. Beside of this, the blue point shows the Mountain Huashan hotel situation in which bowl rice is priced 15 RMB.

In this, the distance between the blue line and orange line indicates to the case of negative externality (Wood & Sullivan, 2015).


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