These new approaches accompanied a birth of new technologies in every field of study, including influential changes in manufacturing, services, transportation, and energy production. While growth in these sectors of the economy has brought considerable standard of living increases, they have not come without cost. According to classical economic theory, the free flowing markets that create such industry growth maximize society's "utility." This massive exchange of goods and services gives rise to a common good for the general public. However, such free enterprise is also prone to market failure, as is the case with air pollution.
Negative Externalities.
Negative externalities are costs "arising from an economic transaction that falls on a third party and that is not taken into account by those who undertake the transaction." Pollution is the most obvious form of negative externality. In other words, it is an external cost that society incurs that is not reflected in market transactions. Polluters do not pay for the costs they place on others. Society pays in the form of health, environmental, quality of life, and other costs like property damage or the cost of emission control devices. Most of these costs are past on to consumers by industry, and only part of these costs are offset by business opportunities created to clean up these self-generated problems. .
Theoretically, the break-even point of pollution in a society will exist where the marginal benefits obtained from pollution equal the marginal costs of cleaning up the pollution. Although air pollution is never in its own right beneficial, the activities that cause pollution could be considered essential or necessary, like energy or transportation. Externalities like pollution can be placed in economic models as variables, but are problematic in that pollution costs and benefits are difficult to measure quantitatively. These costs are often dispersed to consumers through high health care costs or decreased property values.