Market Failure
Introduction
A key cause of climate change is the failure of the market system to efficiently allocate resources to deal with extensive negative externalities, specifically those caused by carbon – based gases polluting the atmosphere. Failure in the market system is having a extravagant impact on atmosphere. The allocation of resources is affecting the environment but more specifically the carbon based gases are polluting the atmosphere. This is resulting in global climate change. Potential solutions will be analysed throughout this essay to prevent market failure. The solutions that will be considered are environmental taxation, government regulation and trading in marketable permits e.g. carbon credit market.
Market Failure
Economists recognise two main types of market failure – spillovers and public goods (Jackson, McIver, Bajada 2007: 208). These types of market failure are externalities and in some cases result in over allocation of resources. Spillovers occur when some of the benefits or costs associated with the production or consumption of a good ‘spill over’ to third parties; that is, to parties other than the immediate buyer or seller (Jackson, Mciver, Bajada 2007:204). Externalities are actions of one economic agent that have an impact on other economic agents, in either a negative or positive manner (Magill’s Choice 1999:569). Spillovers can occur under various categories for example the environment.
The other type of market failure is public goods. Public goods are goods and services not provided by the market system, as they are indivisible and often not bound by the exclusion principle (Jackson, Mciver, Bajada 2007:206). Indivisible goods are goods that cannot be divided. The exclusion principle is simply consumers that don’t buy the product are excluded from the benefits. This is related to market failure as public goods are not provided by the market and some cases aren’t able to be purchased. For example, infrastructure provided by the
A key cause of climate change is the failure of the market system to efficiently allocate resources to deal with extensive negative externalities, specifically those caused by carbon – based gases polluting the atmosphere. Failure in the market system is having a extravagant impact on atmosphere. The allocation of resources is affecting the environment but more specifically the carbon based gases are polluting the atmosphere. This is resulting in global climate change. Potential solutions will be analysed throughout this essay to prevent market failure. The solutions that will be considered are environmental taxation, government regulation and trading in marketable permits e.g. carbon credit market.
Market Failure
Economists recognise two main types of market failure – spillovers and public goods (Jackson, McIver, Bajada 2007: 208). These types of market failure are externalities and in some cases result in over allocation of resources. Spillovers occur when some of the benefits or costs associated with the production or consumption of a good ‘spill over’ to third parties; that is, to parties other than the immediate buyer or seller (Jackson, Mciver, Bajada 2007:204). Externalities are actions of one economic agent that have an impact on other economic agents, in either a negative or positive manner (Magill’s Choice 1999:569). Spillovers can occur under various categories for example the environment.
The other type of market failure is public goods. Public goods are goods and services not provided by the market system, as they are indivisible and often not bound by the exclusion principle (Jackson, Mciver, Bajada 2007:206). Indivisible goods are goods that cannot be divided. The exclusion principle is simply consumers that don’t buy the product are excluded from the benefits. This is related to market failure as public goods are not provided by the market and some cases aren’t able to be purchased. For example, infrastructure provided by the