Market Failure Essay

959 WordsOct 16, 20144 Pages
Elliot Dias-Gunawardena Past Exam Questions- Market Failure Q1. The definition of the term negative externalities is when production and/or consumption activities imposes external costs on third parties for which no appropriate compensation is paid. Q2. There are several reasons in which negative externalities arising from an increase in air transport are an example of market failure. The theory here relates to market failure. Market failure occurs where resources are not allocated to their most efficient use. In the case of the environment the failure occurs because of the existence of negative externalities. Negative externalities are the effects on a third party of an economic decision. An example of a negative externality is air pollution, this is an example of a negative externality, as the air travel agencies ignore the unintended but harmful impact of releasing CO2 into the atmosphere and Global warming, which will affect the rest of the people inside of the economy ( An external cost) as it will affect everyone as well as the individual. The growing worry over global warming may have an affect on market failure, as yes people will still travel to and from places however the people do not consider the further costs that their decision may be imposing in terms to the contribution to environmental change. This is because global warming will have an affect on sea level rising, as when water ( the oceans) are heated/ gain in temperature, the water particle expand, therefore rising the sea level. This could cause major affects of flooding for places over the world. For example Bangladesh, as it is 80% flat low lying land. Also there are other alternatives for Air travel, like Trains, as they produce a quarter of carbon emissions than air travel does. Therefore resources will not be used efficiently if air travel carries on, rather than only alternatives

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