Air Pollution in Beijing

Market Failure is when there is a misallocation of resources. When there is a misallocation of resources, de-merit goods (goods and services whose consumption is considered unhealthy, degrading or otherwise socially undesirable) have been overproduced and priced inappropriately not accounting for external costs to the third party. In this case the external cost is air pollution in Beijing, which has caused damage to the environment and health. The main source of this negative externality came from over production of multiple products and car emissions, which has in turn made Beijing one of the most polluted cities in the world. Without a proper price or regulations being placed the negative impacts of this market failure has not been paid for. This failure is caused by both free market failure and government failure alike due to the lack of intervention. There are solutions that once implemented may be able to undo or prevent further air pollution in Beijing. With Beijing being the capital of one of the major economies of the world it will be difficult to reduce the amount of emissions with government fixated on production mainly consisting of coal burning as fuel as well as many people relying on vehicles to commute to work every day.

As a developing country, China mainly boosts economic growth by investments in capital and infrastructures such as factories. Firstly, factories in China can produce mass production of goods with cheap costs, which is very desirable for firms as all firms are profit-motivated. Also, there are much more land in China than in other developed countries, which leads to low costs of land as there are many supply of land and thus low costs of building factories. As a result, the economy grows with huge amount of exports of goods produced that are cheaply sold to foreign countries. Also, not only mainland investors put lots of money into factories investment but also foreign investors, for example the Hyundai factories from Japan