Externalities, Social Costs and Benefits

Market failure is to blame for climate change and the inefficient allocation of resources. The only solution is for governments to intervene to improve resource allocation.

Assess the extent to which you agree with this statement.

Traffic congestion is a cause of allocative inefficiency.

Evaluate, with the help of diagram(s) two policies that a government may introduce to reduce the problem of allocative inefficiency caused by traffic congestion.

With the help of a diagram, assess the effectiveness of a government’s intervention in the price mechanism to address the causes of climate change.

Market failure exists in all economies.

Evaluate, with the aid of a diagram(s), the meaning of market failure and two policies a government may use to correct market failure.

Governments in many countries are promoting policies that reduce the impact of the negative externalities.

Evaluate, using appropriate diagram(s), the extent to which two policies used to reduce negative externalities can also improve allocative efficiency.

Negative externalities of production cause market failure.

With the help of a diagram, assess the extent to which the introduction of indirect taxation is likely to address this cause of market failure.

The use of air travel leads to market failure caused by negative externalities.

With the help of a diagram, assess the extent to which a government can intervene to correct this market failure.

To improve allocative efficiency economists frequently advise governments to remove existing subsidies to the private sector providers of education.

With the help of a diagram, evaluate this advice.

The increased use of electric vehicles (EVs) is encouraged as part of governments’ climate change policies because they create fewer negative externalities than diesel and petrol (gas) vehicles.

Evaluate, with the help of a diagram(s), two policies that a government may use to encourage the use of EVs.

To improve allocative efficiency economists frequently advise governments to remove existing subsidies to the private sector providers of education.

With the help of a diagram, evaluate this advice.