Copparbet The causes whizzing cases shontess of breath and agrsvates uher renprw

Question

Copparbet The causes whizzing cases shontess of breath and agrsvates uher renprwiory lnesses including asthma and bronchtis The suroundng csenunees of ts mining town have for a very long been suffering such devsaing heaith mpacts You are required to do the following a. You are requred to analyse this environmentai posem ann roe understanding of market failure and externalities and use policy analysis to address the problem in your analysis, cearty indicate how tas envronmental pollution generates extermaikies (leadieng to market talure) and analysve t uing be market equilbrium concept and use polkcy solutioo/s) to correct the problem has a good ce

Explanation / Answer

Having these things in mind, Let us explore the above situation. The environmental problem in the present situation is that the market activity is happening with the producer producing the product and selling it but the neighbourhood people suffering from health impacts. THis is a negative externality as the action of one is adversely impacting the other. This externality can only be internalised if the neighbourhood people are sufficiently compensated for the health impacts they face or the company spends money on pollution control and health promotion. Hence the polluter needs to pay and the affected party must be paid. However, in the present situation, a market transaction has happened with ZCCM is being purchased by the ABC and there is no mention of any extra payment by any party towards the losses faced by the local people. Therefore, this results in a market failure.

The externality might lead to market failure in many ways. The true cost of production is not reflected in the market price of the product. Here the social cost of the product is neglected. This results in a decrease of the price given by the consumer leading to an increase in the demand. Such increased demand results in higher production leading to greater damage to the local community. The victims might create social unrest and might push the industry to become inoperative in their area as a result.

The best policy instrument, in this case, can be both tax or capping. The Government can put extra taxes on the company for the pollution being caused and use the money collected in improved healthcare facilities in the locality affected. The command and control can also be employed where the industry is made abide by the emission targets or to face legal consequences which force the company to spend more on pollution prevention leading to the internalising of the externality. 'Cap and trade' is also another successful attempt to address such externalities, especially successful in North America and Europe in case of the Sulphur Di- oxide.

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