Economics is significant in explaining the complex contemporary issues. It further describes the economic behavior of different economic issues. It requires social intervention to address the market failures where the market fails to correct itself. In this case, the government intervenes using various policy measures. Therefore, a clear understanding of the appropriate policy measures can help to address the existing economic problems like air pollution.
Air pollution is the real world problem in the second diagram. Firms and individuals participate in the air pollution. For example in the picture, the person smoking causes air pollution. Pollution affects the surrounding environment (Harrison 2001). It is detrimental to the surrounding. Environmental interference not only causes environmental concerns like global warming, but it leads to health complications. It negatively affects the individuals around. For example, those people in the picture feel that their salmon is smoky. Air pollution is a source of market failure. It causes negative externalities which are not reflected in the prices. Hence, it leads to market failure.
Economic Explanation for the Existence of Air Pollution
Different factors cause air pollution. The major air pollutants can either be classified as primary or secondary sources (Reitze 2005). Direct sources like the production of carbon into the air is an example of a primary factor. On the other hand, the interaction of primary factors with other elements which cause pollution are the secondary sources. The conventional sources of air pollution are the primary factors. Burning Fossil fuel causes a higher percentage of air pollution compared to other factors. Fossil fuel produces sulfur dioxide that is harmful. Additionally, agricultural activities produce gases like ammonia which are unhealthy. Furthermore, industries emit toxic substances into the air. Moreover, consumption of harmful substances like a cigarette as shown in the picture is a source of air pollution.
Government Policies to Address Air Pollution
The government can enforce the regulation. Regulations on the limit to which the air can pollute are effective in reducing air pollution. For example, the EU has a regulation of the Clean Air Act (1956) which reduced pollution in cities like London (Knight 2006). It achieved this by banning the burning of coal in major cities.
Also, the government can use tax measure to address pollution. The tax raises the price of goods (Goetz & Berga 2006). Increased tax can reduce the demand for the targeted product. For example, increasing taxes on cigarettes would cause the number of cigarettes consumed to reduce as demand decreases. The purpose of the tax is to make the consumers and producers to cater for the full social cost of pollution as shown below.
The tax shifts the supply of cigarettes from S1 to S2. Consumers are forced to pay for the external cost of pollution which is reflected in the reduction of quantity consumed from Q1 to Q2. It leads to reduction in pollution as the consumers pay a higher price of P2 from P1. Therefore, production is efficient where social marginal cost is equal to marginal social benefit. Thus, the government will achieve its aim for a reduction in air pollution.
In summary, air pollution is real world problem. It causes market failure. The externalities caused by smoking cigarettes are not reflected in the market prices. However, the government can apply tax and regulation policy to reduce air pollution.
Goetz, R.-U., & Berga, D. (2006). Frontiers in water resource economics. New York, Springer Science+Business Media.
Harrison, R. M. (2001). Pollution: causes, effects, and control. Cambridge, Royal Soc. of Chemistry.
Knight, D. J. (2006). New EU regulation of chemicals: REACH. Shrewsbury, Rapra Technology.
Reitze, A. W. (2005). Stationary source air pollution law. Washington, D.C., Environmental Law Institute.