might impose external costs on neighbors if rain results in runoff on surrounding land, or if the runoff seeps into the ground table and pollutes the water for human or animal consumption. Even fast food restaurants impose external costs in the sense that the countless wrappers, cups, and other containers given to customers require an inordinate amount of space in local trash dumps, and the cost of this disposal is placed on taxpayers. Airlines and airports also impose external costs on those who live under flight patterns in terms of excessive noise, which tends to lower property values. Thus, external costs are quite common in the American economy today.
In summary, an unrestricted free market tends to produce too much of a good or service when external costs are present (Byrns 1987). The presence of the latter tends to distort prices and costs and suboptimizes economic activity from a societal viewpoint. Government often tries to ameliorate such imbalances through regulation, taxation, subsidies, and other controls, but they tend to be less than perfect because of the intrinsic difficulty of measuring external costs. For example, consider government imposition of scrubbers on large smokestacks that emit significant amount of pollutants into the air. This remedy internalizes the external costs of such pollution. Yet in doing so, higher production costs result, which cannot be passed on to customers via higher prices in all cases. Invariably, marginal companies fail, leaving the larger, richer ones in a stronger, often oligopolistic position. This is even truer nowadays in light of extensive foreign competition, particularly form less-developed countries whose manufacturers gener
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