A steel manufacturer is located close to a large town. During production it emits sulphur which creates an external cost to the local community. The private costs of production and the private benefits to steel buyers, who are mainly cars producers, are shown, along with the estimated external costs.
| Quantity of Steel (m tonnes)
||Price car makers are prepared to pay, based on expected private benefit (£)
||Price steel makers are prepared to receive, based on their private production costs (£)
|| Estimated external costs to society of pollution (£)
- Draw a graph to show market price and quantity and plot the effects of including external costs. Show the socially efficient output of steel.
- Show the area of net welfare loss on your graph.
- What remedies could the authorities employ to deal with the problem of external costs?
- What is meant by the tragedy of the commons?
- Draw a graph to show a negative production externality.
- On this graph, show the ‘net welfare loss’.
- Explain how permits to pollute work.
- What is carbon trading?
- What is carbon offsetting?
- What is a landfill tax?
- Why might pollution taxes not be effective?
- Draw a diagram to show the possible effects of a carbon tax.
Stagflation is a combination of high inflation, high unemployment, and stagnant economic growth. Because inflation isn't supposed to occur in a weak economy, stagflation is an unnatural situation. Slow growth prevents inflation in a normal ...
The laissez-faire economic theory centers on the restriction of government intervention in the economy. According to laissez-faire economics, the economy is at its strongest when the government protects individuals' rights but otherwise doesn't intervene. The ...
What Is Adverse Selection? Adverse selection is a term that describes the presence of unequal information between buyers and sellers, distorting the market and creating conditions that can lead to an economic collapse. It develops ...
Explaining The K-Shaped Economic Recovery from Covid-19 A K-shaped recovery exists post-recession where various segments of the economy recover at their own rates or levels, as opposed to a uniform recovery where each industry takes the same ...
Does Public Choice Theory Affect Economic Output? Both on paper and in real life, there is a solid relationship between economics, public choice, and politics. The economy is one of the major political arenas after all. ...
Largest Retail Bankruptcies Caused By 2020 Pandemic As we know at this point, the COVID-19 pandemic has thrown major companies in the US and the world over into complete havoc. Many have filed for bankruptcy, with an ...