Market Failure of air pollution

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Presentation transcript:

Market Failure of air pollution By Young – Joo Kim

-Link- http://www.nzherald.co.nz/section/2/story.cfm?c_id=2&objectid=10522702 http://www.youtube.com/watch?v=TwM9_3thvss http://www.youtube.com/watch?v=e19VoA2SApM http://tvnz.co.nz/view/page/1229447

Identify the spillover SMC1 PMC=SMC Costs Deadweight loss PS PFM PMB QS QFM Output

Why its market failure If we assume that the factory (such as chemical, iron…) trying to maximise the profits, then producer only consider their own private costs and private benefits from their supply of production so they will produce at the output level QFM. However the socially efficient level of production after considering the spillover costs on third parties is Qs. I.e. In this example a free market would over produce because the film won’t take account of the negative spillover.