Market Failure is when there is a misapplication of resources. When there is a misapplication of resources, De-merit goods (goods and services whose consumption is considered unhealthy, degrading or otherwise socially undesirable) have been overproduced and priced inappropriately not accounting for external costs to the third party. In this case the external cost is air pollution in Beijing, which has caused damage to the environment and health. The main source of this negative externalities came from over production of multiple products and car emissions, which has in turn made Beijing one of the most polluted cities in the world.
Without a proper price or regulations being placed the negative impacts of this market failure has not been paid for. This failure is caused by both free market failure and government failure alike due to the lack of intervention. There are solutions that once implemented may be able to undo or prevent further air pollution in Beijing. With Beijing being the capital of one of the major economies of the world it will be difficult to reduce the amount of emissions with government fixated on production mainly consisting of coal burning as fuel as well as any people relying on vehicles to commute to work every day.
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As a developing country, China mainly boosts economic growth by investments in capital and infrastructures such as factories. Firstly, factories in China can produce mass production of goods with cheap costs, which is very desirable for firms as all firms are profit-motivated. Also, there are much more land in China than in other developed countries, which leads to low costs of land as there are many supply of land and thus low costs of building factories. As a result, the economy grows with huge amount of exports of odds produced that are cheaply sold to foreign countries.
Also, not only mainland investors put lots of money into factories investment but also foreign investors, for example the Haunted factories from Japan which have recently cut output by the government due to serious air pollution. Therefore, it is very undesirable for the government to limit the production from factories in terms of it helping the economy a lot. But the problem is that the government has to face the serious air pollution in Beijing, which is mainly caused by gas emission of factories and also cars. Another factor contribution to the high air pollution is car emissions.
The population of Beijing is 20 million and with a majority of Beijing having vehicles. Beijing also has one of the highest congestion in the world with 4. 7 million cars on the roads every day and that statistic has been expected to double by 201 5 without drastic action. Car emissions has always been known to contribute a major amount of air pollution in Beijing to the extent where there are thick smog the latest being in January 201 2 covering Beijing an car emissions were ruled as the number one contributor, The motor vehicles are lamed for nearly a quarter of the capital’s PM. Or airborne particles measuring less than 2. 5 micrometers in diameter. Government has been trying to instigate new rules and regulations in order to decrease the amount of car emissions and bring down air pollution in Beijing. The air pollution affects the ecosystem and health, which has not been accounted for in price so the consumption of fuel for vehicles is a demerit because as defined earlier its consumption is viewed as unhealthy or degrading. The free market failure occurs when a market produces a misapplication of resources.
Since production from factories and cars are De-merit goods and negative externalities, it is a market failure as it is over provided by the market and there are huge external costs as a consequence. It is all due to the cheap costs for production in China thus a mass production from factories and emitting harmful gas causing air pollution in Beijing as a result. Land is misused for capital with negative externalities that are factories that emit harmful gases in this case. Households over consume cars that emit lots of carbon dioxide.
These are all market failures, leading to serious air pollution in Beijing as a result. Since factories and cars are both demerit goods, which it is over provided by the market as firms are failing to access risk and to price the cost of production accurately, and the external cost is not considered, which in this case the marginal social cost is way larger than the marginal private cost, there are third party spill over effects arising from the production and consumption of factories and cars for which no appropriate compensation is paid.
Thus the production from factories and cars are negative externalities. A cause for these negative externalities is partially due to Government allure. The Government allowed the air pollution to reach a drastic Stage before intervening to prevent further air pollution in the city. With the government’s drive to keep productions high to increase the Chinese economy there has so far been little intervention, which may have affected the overall production rate of the capital.
However, Government has started intervening as they have ordered 1 03 heavily polluting factories to suspend production and make Beijing a coal-free capital all in an effort to stop the amount of emissions produced their aim is to lower the coal burning from 20 lion tons to 15 million tons by 2015. Without government intervention this negative externalities would continue to build up and make Beijing an unlivable habitat for human beings, which would greatly affect many industries in Beijing, as workers would not wish to work in a city so heavily polluted.
It may have been different if government had chosen to intervene earlier when the air pollution was appearing to have reached a critical Stage, as there may be little the government can do to clean up the air of Beijing. This negative externalities can create damage to both health and the environment. With production and car emissions releasing air pollutants it creates a serious threat to lives. These air pollutants can cause illnesses and viruses.
The negative externalities can be dealt with in other methods of intervention. One possibility is to implement filtration systems on exhausts of cars and on factory chimneys which will result in cleaner emissions however this may only lead to reduced air pollution and may not do anything to the current air pollution. Another possibility is to implement a carbon tax, which proceeds could be used to research ways to deal with the air pollutants but his would only show to effect the air pollution at a later stage.
Government should also consider subsidizing more fuel-efficient cars and increase the car taxes to both pay for external costs as well as discourage the use of vehicles but many people already own cars and would not purchase another car for some years. In fact, a Beijing political advisory body agreed on a proposal to levy a pollution tax on vehicles. As for solving the problem Of negative externalities Of production from factories, many factories have stopped production and are in idle at the moment. TOTO Beijing is the only big ceramics factory in the capital city.
One of its production procedures creates dust pollution. With air pollution escalating in the last several days, the city government has told the factory to cut production, and now stop altogether. A total of 48 locations to work including the construction zone, metal processing plants, and chemical industries have ceased their activities, and 41 factories have cut output, including Beijing Haunted Motor also has stopped on 27 January 2013. But it is not sure yet whether stopping production will actually help the problem of air pollution in Beijing and the results are yet to be revealed in the future.