... to survive, economic agents tend to make decisions of resource usage based on private costs and benefits to themselves, overlooking the critical affects of social costs followed by their actions, known as externalities. For example, when two businesses sell the same product, they compete for customers by lowering the costs of production, using the cheapest resources available, so their profits will grow. Many factories establish themselves in developing countries where they use cheap labour, avoid paying environmental control costs, such as waste clean up, dump chemical waste into rivers and pollute the atmosphere with gases, which are called environmental externalities. On one hand, consumers benefits from low costs products but on the other, production methods cause erosion of natural and social recourses. (Hinchliffe and Woodward, 2004, p. 99 & 100). The Stern Review, written by economist Nicholas Stern for the British Government, conveys the affects of economic activity on the ...

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