Negative Externalities

Guatemala and Illicit Gun Sales

Cost outside the MarketEffects the MarketCauses inefficiencyIf brought into the market, would move the

market to the efficient level.

What is a negative externality ?

“Guatemala is one of the world's most violent countries, with 52 murders per 100,000 people last year, according to a government estimate.”

In the market for (legal) guns, only the MPC is taken into account

However, there is more to it (MEC)Illegal gun salesIllegal activity involving these guns

If this MEC cost were realized in the market? (MSC)Quantity decreasePrice Increase

Illicit Arm Sales