...failure as the free market may fail to take into account the negative externalities of consumption (pollution) because the social cost exceeds the private cost. Consumers too may experience imperfect information about the long term costs to themselves of consuming products deemed to be de-merit goods By imposing indirect tax on producers it raises their costs of production, shifting their supply curve inwards. If they have set the tax at the right level, this internalises the externality. By doing this the price of fuel will go up and so reduce the amount consumed and therefore reducing the negative externality which is pollution. It also provides incentives to reduce the negative externality such as pollution. E.g. cars have become more fuel efficient It can also raise revenue for the government. One project could be investing in improving public transport , as this is a substitute for driving, and if it was improved it might give drivers an alternative to driving which would reduce the externality occurring in the first place. If the revenue was spent this way then all users of public transport would benefit, so those who currently use the bus and train would gain from the tax remaining high if that meant that their fares were cheaper (or service quality was better. They can also use the revenue to get rid of information failure regarding the overconsumption of the de-merit good which causes a negative externality. This could be done through advertisements and awareness...
Words: 420 - Pages: 2
...the amount of congestion and negative externalities associated with it. Congestion occurs when the volume of traffic is greater than the operating capacity of the road and produces negative externalities, which are costs that are suffered by a third party above those felt privately. Where road pricing excels as a solution to congestion, above methods of flat taxation, is in its targeting of users who specifically add to congestion. Whereas other methods are blunt in their blanket approach to car ownership, road pricing specifically targets road usage. Therefore it acts as a true cost of the use drivers make of the road network, often penalising those who can afford it and leaving other options open to those who can’t. Some forms of road user charge are more precise than others, for example the Electronic Road Pricing Scheme in Singapore, which utilises variable pricing based on congestion levels and time of day, to fully apply the cost of congestion to the private motorist. In doing so, it improves awareness of the external cost involved when deciding to travel on a particular stretch of road, as evidenced by Singapore having one of the highest per capita incomes in Asia, but fewer than 30% of Singaporean households owning cars (given that cars are often considered luxury goods and demand should rise in times of prosperity) . The road pricing scheme generates money from car users that can be hypothecated into resolving the negative externalities that are generated by apathy...
Words: 889 - Pages: 4
...try and correct for the negative externality (pollution) which is produced when they are consumed. Without the tax there would be a market failure as drivers would be over consuming petrol as they are not being charged for the damage to the environment. In order to order to answer this essay as to whether the tax should be reduced, I am going to focus on 3 aspects; those that lose from a reduction, those that gain from a reduction and finally at what level the overall price for petrol was BEFORE the tax reduction. In my conclusion I will show that this is key to deciding whether the tax should be lowered or not. The major argument for maintaining the level of taxation on petrol and diesel is to protect the environment. When the social costs of consuming a good are higher than the private costs, there is said to be a negative externality. As an individual consuming fuel is polluting the environment for all, then it can be seen that fuel produces a negative externality. This is illustrated in diagram 1 below. This shows that without any government intervention, the market equilibrium would consume Qp at price Pp. This is higher than the social equilibrium, Qs, meaning there has been a welfare loss to society of (shade triangle). Government fix this by imposing an indirect tax on producers, which effectively raises their costs of production, shifting their supply curve inwards. If they have set the tax at the right level, this internalises the externality and the new private cost...
Words: 1254 - Pages: 6
...cost-benefit sheet. This plan is better, with less negative externalities, is realistic and more profitable on the long run but it would create only 20,000 jobs in 30 years and less in terms of the cost to be incurred for maintaining a 5000 kilometers’ pipeline, now reduced to 2,250 km in length. Transporting petroleum products destined for the Asian market is not completed but it is still achievable under the rerouting plan. The rerouting plan make it possible and feasible providing up to 75% of...
Words: 1397 - Pages: 6
...existence of externalities - eg pollution (negative) or training (positive) causes private and social costs and/or benefits to diverge · Imperfect information means merit goods are under produced while demerit goods over produced · Markets cannot make a profit from producing public goods and quasi-public goods · The concentration of power in markets results in market dominance and abuse of monopoly power · Factor immobility such as the geographical & occupational immobility of labour causes unemployment hence productive inefficiency · Equity (fairness) issues. Markets can generate an ‘unacceptable’ distribution of income and social exclusion where people on low income – the relatively poor - are denied access to essential goods and opportunities considered ‘normal’ by a society eg food, clothing, housing, and education Economists seek to place a monetary value on the spillover effect. How can time savings, loss of life or limb; environmental damage, lost countryside or loss a species be valued? Either or values of what it would take to avert Eg · Congestion time lost x value of time · Accidents statistical value of life or injury · Noise & local air pollution value changes in traffic flow and proximity to property. In an unregulated market individual road users only consider the private costs and benefits of using limited road space. When the demand for roads rises above a certain level, road users impose additional costs (externalities) on others...
Words: 353 - Pages: 2
...solution to the externalities created by smoking in public places. Introduction Partial smoking bans have become increasingly popular in Western democracies in recent years and tend to revolve around the banning of smoking in public areas. This essay will explore economic arguments and solutions relating to the externalities caused by smoking. The central problem at the heart of this issue is the over-consumption of cigarettes and the problem that the externalities of smoking cause for the general public and therefore this essay will show that efforts to curb total level of cigarette consumption can be approached from a variety of different perspective (see graph below). The essay will begin by discussing the economics of externalities before moving on to examine Pigovian and Coasian theoretical frameworks. The final section of the essay will apply these frameworks and will show that on balance a Pigovian tax in conjunction with a partial ban is the socially optimum solution. For the purposes of this essay an outright ban will refer to a total ban of cigarette consumption in society. [pic] Fig. 1 – Negative Consumption Externalities (Tutor2u, 2013). The economics of externalities The notion of externalities is not straightforward to define and Vanhove argues that externalities is one of the “vaguest and most ambiguous terms in economic science” (Vanhove 2011: p.285, Papandreou, 1998). In general, however, there is a consensus in economic circles that externalities refer to an...
Words: 1970 - Pages: 8
...AS Micro Essays These are some suggested AS Macro Economic essays. The essays are from different exam boards. In practise they ask similar questions. There are different ways to answer questions. But, all these answers contain enough material to get the top grade. Whenever the question requires evaluation, the essay contains the necessary critical distance. Note: These essays are for revision purposes giving suggestions for how to answer questions. Don’t try to pass them off as your own work. AS Micro Essays 1.Evaluate the case for and against governments intervening to try to stabilise the price of copper, for example, through setting up a buffer stock scheme. 2.Evaluate advantages and disadvantages of various methods of government intervention to correct market failure arising from aircraft emissions. 3. Discuss the likely effects on the retail market for coffee if there is a large increase in city centre rents. 4.In the UK, students face increasing tuition fees. Discuss the benefits and costs to society of abolishing all tuition fees. 5.Discuss three policies to reduce the level of cigarette smoking amongst under 21s. 6.Discuss the extent to which governments should subsidise companies who are developing cars which run on clean fuels such as hydrogen? 7.Discuss whether the government is mistaken to worry about monopoly power? 8.Discuss the advantages and disadvantages of the government intervening in agricultural markets? 9.Discuss the effects...
Words: 8844 - Pages: 36
...Based Pricing in Transport Key Implementation Issues from the Economic Perspective Erik Verhoef, Free University Amsterdam Paper prepared for IMPRINT 1. Introduction Marginal cost pricing in transport is a ‘hot’ topic, in at least two senses. First, as is well known, over the last decade(s), sophisticated pricing policies in transport have evolved from a primarily academic, theoretical construct, to a realistic and seriously considered option for many areas – urban and non-urban – around the world. This is due to (at least) two simultaneous, interacting developments, viz. the steady growth in transport related problems such as congestion and emissions on the one hand, and the development of technologies enabling automated charging on the other. So, marginal cost pricing in transport is ‘hot’ in the sense that many governments, at different spatial levels, seriously explore the possibilities for implementing some form of pricing policies aimed at the containment of transport-induced externalities. At the same time, such proposals are rarely met by great public enthusiasm, making it a ‘hot’ topic from the political viewpoint in that policy makers might easily burn their hands when proposing to drastic pricing reforms in transport. A very common result is that proposals for pricing schemes often end up in the proverbial wastebasket long before a first penny was to be actually charged. Apparently, the implementation of marginal cost based pricing in transport is not as straightforward...
Words: 8331 - Pages: 34
...New Delhi | [Type the document subtitle] | [Type the author name] [Pick the date] | Vehicular Pollution and Sustainable Remedies: New Delhi New Delhi, the capital of India is considered to be most polluted cities in the world caused by spectacular vehicular growth in the past 2-3 decades. It has been observed that air quality in New Delhi is deteriorating each day due to vehicular emissions that bring about great levels of ambient air pollutants in the city. Main Factors identified as reason for increased pollution due to vehicle are: High volume of traffic and urban population dynamics; excessive increase in private and personal vehicles; growing traffic jams; improper maintenance of vehicles; less eco-friendly mode of transport and bad fuel quality.(download). Automobile vehicles emit several pollutants depending upon the type and quality of fuel consumed by them. Major pollutants are carbon monoxide, nitrogen oxide, photochemical oxidants, lead, particulate matters, oxides of sulphur and hydrocarbons etc. Vehicular emission cannot be avoided as it is released or emitted at ground level where we breathe (Ashok Kumar, N.D). Main Pollutants and Health Effects (Ashok Kumar, N.D) Pollutant | Health Effect | SPM | Damage of lungs, bronchitis and asthma | SO2 | Acid rain, damage to lungs, eyes and skin | NOx | Form Smog damage to respiratory system and eye irritation | CO | Toxic causes blood poisoning | HC | Cancer | Pb | Nervous system slow down ad...
Words: 1448 - Pages: 6
...Economic Issues: An Introduction DE3A 34 Assessment Exemplar for Higher National Unit DE3A 34: Economic Issues: An Introduction 1st edition: July 2004 Price: £20.00 Publication code: CB2154 Published by the Scottish Qualifications Authority Hanover House, 24 Douglas Street, Glasgow, G2 7NQ, and Ironmills Road, Dalkeith, Midlothian, EH22 1LE The information in this publication may be reproduced to support SQA qualifications. If it is reproduced, SQA should be clearly acknowledged as the source. If it is to be used for any other purpose, then written permission must be obtained from the Support Materials Development Officer at SQA. It must not be reproduced for trade or commercial purposes. © Scottish Qualifications Authority 2004 DE3A 34: Economic Issues: An Introduction Contents 1 2 3 Introduction How to generate evidence Assessment exemplar Scottish Qualifications Authority Assessment Exemplars for Higher National Units DE3A 34: Economic Issues: An Introduction 1 Introduction This pack must be used in conjunction with a copy of the Unit specification which details the standard of performance expected of the candidate. A copy of the Unit specification can be obtained from SQA. This pack supplements the assessment guidelines and support notes of the Unit specification. It aims to provide an example of assessment that is valid, reliable and practicable. The assessment task(s) detailed in this pack correspond to the assessment guidelines outlined...
Words: 4303 - Pages: 18
...What is the Tragedy of Commons? Who came up with the theory? The tragedy of the commons is the tendency of a shared, limited resource to become depleted because people act from self-interest for short-term gain. Garrett Hardin came up with the theory. Explain how the Tragedy of the Commons could apply to the ocean. The fishermen overfish marine animals from the ocean. It will cause the number of marine animals to decline quickly. It eventually will upset the balance of entire marine ecosystems What is an externality? Who pays for the costs of externalities? Describe one positive externality and one negative externality of living near the ocean. An externality is a cost or benefit of a good or service that is not included in the purchase price of the good or service. Human...
Words: 1680 - Pages: 7
...ECONOMICS FOR BUSINESS AND MANAGEMENT BC115008S SID: 1118562 Q1:”People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices” (Adam Smith, 1776, Book 10, Ch. VIII). Often, as Adam Smith noted above, the marketplace is influenced by the growth of monopolies, mergers, and cartel-type activities which often use their market power to the disadvantage of consumers. a) Examine the arguments in favour of a free-market system of resource allocation b) Explain how market failure can occur and suggest how the government in a country of your choice has sought to correct those market failures. 1.0 FREE MARKET SYSTEM ‘’If you leave the Market going alone, it will balance as there was an invisible hand’’ (Smith,1776). Free markets have many virtues. Arguably, the most recognized is the expansion of individual choice, and thus freedom, through mutually beneficial exchange. (Bauer, 2002, p.171) 1.1 Basis of the free Market: According to Adam Smith ,the free market system was based in: Free enterprise or ‘’Laisser faire’’, individualist, risk, capitalism. * Free enterprise (Laisser faire): The government does not run anything. * Individualist: Only individual matter, not community, not society. * Risk: Everyone can make a lot or can loose a lot. Everyone take his owns risks. * Capitalism: where the main thing is to make profit...
Words: 2138 - Pages: 9
...Carbon emissions and GHG present a negative externality towards the global environment, yet these GHG emissions are not easily captured or represented in monetary terms. Several Methods have been used to estimate the value of carbon emissions that might arise from capital protects (Comhar. 2008): Marginal Abatement Cost of Carbon (MAC) or Avoidance Cost, and Social Cost of Carbon (SCC) or Damage Cost techniques. The social cost of carbon has been defined as the full effect on social welfare of emitting an extra ton of carbon (as carbon dioxide) at some point in time, over the lifetime of that ton in the atmosphere. The SCC measures the full global cost today of an incremental unit of carbon emitted now to the full global cost of the damage...
Words: 884 - Pages: 4
...Task-1 Simple Supply and Demand The utilisation of various products includes crore of millions of population, who individually can limited the power to effect the cost of goods, but combinedly have plenty of power to influence it. The solution will definitely won’t shock you: (Foreign countries) Saudi Arabia. But the very close runner-up might: The (USA)United States of America creates more than 11.11 million barrels every day, which can be more than 95% of what other foreign countries like Saudi Arabia produces. If comparing Russia which is close behind the (USA)United States. The world's 2nd largest economically rich country china, is a distant fourth. With oil's stature as a highly demand global product comes the possibility that various and major changes in cost of goods have a very significant impact on the economic of the country. The two basic factors that affect the cost of oil. (December 4, 2014) (Blitzer, December 4, 2014) * demand and supply * market condition Demand of oil The concept of supply and demand is not complicated.as supply falls (or demand rises) the price should go high.as demand falls (or supply rises) the prices reduces.an oil future contract is a agreement that gives the authority to buy oil in barrels at a predetermined price on a predetermined date in the coming future. (al-Naimi, April 20, 2015) Oil scarcity Oil scarcity can be caused by various factors,including technical limitations etc.this resources of oil is scarce when the...
Words: 3229 - Pages: 13
...Economy 15 5. Positive & Normative Statements 18 6. Theory of Demand 19 7. Theory of Supply 21 8. Equilibrium/Market Clearing Price & Price Mechanism 23 9. Consumer and Producer Surplus 26 10. Price Elasticity of Demand 28 11. Price Elasticity of Demand and Revenue 30 12. Price Elasticity of Demand along Demand Curve 31 13. Cross Elasticity of Demand 32 14. Income Elasticity of Demand 33 15. Price Elasticity of Supply 34 16. Elasticity Summary 35 17. Indirect Taxes and Subsidies 38 18. Labour Markets 41 SECTION B – MARKET FAILURE 19. Market Failure 45 20. Externalities 46 21. Externalities Diagrams 47 22. Merit and Demerit Goods 49 23. Missing Market: Public Goods 51 24. Imperfect Market Information 53 25. Government Intervention to Correct Market Failure 55 26. Factor Immobility: Labour Market 60 27. Unstable Commodity Markets: Agriculture 62 28. Case Study: EU Common Agricultural Policy 66 29. Government Failure & Cost-Benefit Analysis 69 SECTION C – EXAM TECHNIQUE 30. Multiple Choice Questions 72 31. Data Response Questions: Analysis & Evaluation 73 READING LIST MAIN TEXT BOOKS (Buy one copy for your own use at home). Peter Smith, AS Edexcel...
Words: 15000 - Pages: 60
