Question

In both of the following cases, identify the type of externality that led policy-makers to implement regulations.

a. In 1992, the government of Singapore banned the importation and sale of chewing gum. This included bringing chewing gum into Singapore for personal use. (Note: This law was softened in 2004 following the United States–Singapore free trade agreement, which allowed certain chewing gums to be sold by pharmacies for therapeutic reasons.)

b. France has a law that portable listening devices must have a maximum output level of 100 decibels. Apple was forced to change the output of its iPods sold to France as their output exceeded 100 decibels.

Answer 1

Both are the cases of negative externality. In the first case, the government banned the import and sale of chewing gum for personal use because of the negative externality involved with it,. If the government is banning the consumption of any good, then it must have negative externality associated with it which forced government to ban it.

In the second case also, portable listening devices having a maximum output level of 100 decibels harms the listening capacity of the third party close to the person listening that device. Thus, Apple has to reduce its output to meet the requirements of the government. Thus, this is also the case of negative externality.