chapter 3.1 review questions

Private cars and carbon emissions: Type of externality, diagram description, optimality, and fuel tax effect.

• negative consumption externality → act of consuming good (driving) creates uncompensated damage to society

• MSB curve below MPB curve

• market output level too high to be optimal → society experiences deadweight loss

• implementing green tax on fuel: shifts MPC upward, raising consumer price & reducing output to socially optimal level

Trucks for transport services and carbon emissions: Type of externality, diagram description, optimality, and fuel tax effect.

• negative production externality → providing transport services generates uncompensated external environmental damage

• MSC curve above MPC curve

• market output level too high compared to social optimum

• green tax on fuel: increases firm MC, shifting supply curve up to internalise the externality & reduce output to optimal level

Public transport and carbon emissions: Type of externality, diagram description, optimality, and social view.

• positive consumption externality → reduces overall carbon emissions & benefits society

• MSB curve above MPB curve

• market consumption is too low to be optimal

• from social view: government intervention is needed, to shift private demand outward to achieve socially optimal level of output

Is the statement "The optimum level of polluting emissions is zero" correct?

• economic standpoint: no

• socially optimal level of pollution: when MC of reducing pollution = MB of economic activity creating it

• to eliminate all pollution, we have to stop almost all industrial, transport, & agricultural production → catastrophic social welfare losses that outweigh environmental benefits

How do the damage cost approach and abatement cost approach differ?

• damage cost approach: monetary value of actual harm inflicted on human health, infrastructure, & ecosystems by environmental degradation

• abatement cost approach: proactive → financial cost required to prevent, avoid, or safely clean up emissions before they cause harm

What is the largest negative externality of car traffic?

• climate change → largest long-term

• traffic/accidents/noise → largest immediate / daily

• carbon-driven climate change → largest macro-economic costs

Which 2 types of traffic contribute most to climate change?

1. road transport: highest transport-related GHG emissions

2. aviation: highest high-altitude radiative forcing

Which sector is contributing most to GHG emissions?

1. energy: heat & electricity production

2. industrial manufacturing & agricultural / land use

Why may the Coase theorem work for local externalities but fail for global externalities?

• relies on low transaction costs & clearly defined property rights to allow parties to bargain efficiently

• global externalities: involve billions of people, undefined international property rights over the atmosphere, & free-rider incentives

• makes transaction costs prohibitively high for private bargaining to work