One of the most important government agencies dealing with product safety is the Food and Drug Administration
(FDA). If products are found to be unsafe, the FDA has the power to order them off the market. The agency conducts tests on prepared foods to find out if any of the ingredients are cancer-causing. No new drugs may be put on the market without the FDA's approval.
Another federal agency concerned with consumer safety is the Consumer Product Safety Commission, which issued a recall of asbestos-insulated hair dryers, put an end to the use of benzene in paint removers, banned the use of Tris—a cancer-causing flame retardant in children's clothing—and required that slats on baby cribs be set closer together to prevent strangulation.
There are government agencies not only to protect our health, but to protect our pocketbooks. The Federal Trade
Commission tries to prevent deceptive advertising. It has made producers of aspirin pills, diet breads, toothpastes, cigarettes, and numerous other products either prove their claims or change their advertisements.
To protect the interests of investors and provide more stability to the financial markets, the Securities and Exchange
Commission was set up in 1934 to regulate the stock market.
It requires full disclosure of a company's financial condition when new stock is issued, and has helped eliminate stock swindles.
In recent years there has been legislation requiring financial institutions and companies extending credit to provide the borrower with complete information about the true interest charges and payment conditions. In some states, customers are allowed to cancel certain kinds of purchase contracts within a few days after signing them. Some of the types of contracts which can be cancelled are land purchases in undeveloped land promotions and contracts signed with door-to-door salespeople. These laws are designed to protect consumers from being manipulated into hasty, unwise decisions by high-pressure sales techniques.
Worker protection The Occupational Safety and Health Act
(OSHA) gave the Labor Department the power and responsibility to set standards for the workplace to protect workers from work-caused injury and illness. Since 1972, the first full year of OSHA operation, job fatalities have been reduced
10% and disabling injuries have declined from one for every
34 workers to one for every 43 workers during the year.
However, OSHA regulations and plant inspections have been vigorously opposed by some businesses. It has been claimed that OSHA regulations cost industry too much, that they drive some companies but of business, and that they make competition with imports difficult because the in-
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The Study of Economics external costs costs of the production process that are not carried by the producer unit or by the purchaser of the product and are therefore not taken into consideration in production and consumption decisions. internalize external costs the process of transforming external costs into internal costs so that the producer and consumer of a good pay the full cost of its production.
172 creased costs must be reflected in higher prices. The
American Textile Manufacturers Institute and twelve textile companies filed suit to overturn OSHA standards requiring mills to reduce cotton-dust levels in the plants in order to lower the incidence of brown-lung disease among the workers.
The textile firms maintained that the air-filtration systems needed to meet the standards would impose unreasonable costs on the firms. But in a 1981 decision, the Supreme
Court rejected the arguments of the textile industry. The court held that the law only required that the needed safety measures be "feasible," not that they meet a cost-benefit criteria.
Environmental protection As America has become more aware of the dangers of pollution, the public has increasingly demanded that the sources of pollution be curbed. One of the principal reasons why pollution has become so bad is that producers and consumers in some circumstances do not pay the full costs of what they use, including the environmental costs. Motorists do not have to include in their car expenses the health and environmental damage resulting from automobile exhaust emissions. Airlines, and their passengers, do not generally have to pay for the noise pollution that they create in the neighborhoods of airports when landing and taking off. These costs, which are not paid by the user, are called external costs because they are imposed on other people. The existence of external costs means that too much of a good is being produced and used. From the standpoint of economic efficiency, prices should always reflect the full production costs of a good or service. When there are external costs that are not covered by the supply price, the market equilibrium price is too low and the quantity produced too large for the most efficient allocation of resources. As much as in situations where prices should not be higher than production costs, neither should they be lower than the costs of the good, including the costs of any environmental damage resulting from its use.
The solution for this problem is to internalize the external costs by requiring producers and buyers to shoulder the full costs of production. In the case of automobile exhaust pollution, this is accomplished by requiring the installation and proper maintenance of exhaust emission control devices. In the case of airport noise, the solutions are to require airlines to fly planes with quieter engines, restrict their hours of takeoffs and landings, and restrict their flight patterns. The cost of these pollution abatement requirements raises prices to consumers. But without such regulations, society subsidizes the production of pollution. Somebody has to pay the costs, and it is more resource-efficient for the user to pay than to allow external costs to shift the burden to others.