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Economics Micro IA

1) A new study from the University of Melbourne found that air pollution from vehicles kills more Australians each year than car crashes. 2) The consumption of oil and gas contributes to sustainability issues as these resources are finite and their use reduces availability over time. 3) The article discusses negative externalities of vehicle emissions and how they impose health costs on third parties not accounted for in the private costs to producers and consumers.

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22 views6 pages

Economics Micro IA

1) A new study from the University of Melbourne found that air pollution from vehicles kills more Australians each year than car crashes. 2) The consumption of oil and gas contributes to sustainability issues as these resources are finite and their use reduces availability over time. 3) The article discusses negative externalities of vehicle emissions and how they impose health costs on third parties not accounted for in the private costs to producers and consumers.

Uploaded by

khansadikot
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© © All Rights Reserved
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School code

School Name Uptown International School


Candidate Number
Candidate Name Husain Sadikot
Teacher Mrs. Comerford
Title of article Car pollution kills more Australians than
crashes. New research finds
Source of article https://www.theguardian.com/international
Date the article was published 24th February 2023
Word count 798 words
Section of the syllabus the article relates to 2.7 The role of government in
microeconomics
2.8 negative externalities
Microeconomics
Link to article https://www.theguardian.com/australia-
news/2023/feb/24/car-pollution-kills-more-
australians-than-crashes-do-new-research-
finds

Key concept Sustainability


Article (THE GUARDIAN)

https://www.theguardian.com/australia-news/2023/feb/24/car-pollution-kills-more-
australians-than-crashes-do-new-research-finds
Commentary

the article discusses the issues associated with the emission of gas in vehicles all through
Australia on February 24th. This considers the issue of it being a leading cause of deaths and
killing more people than vehicle crashes itself. Oil and gas resources are finite, and their
constant use reduces availability for others making this not non-rivalrous hence the
consumption creating sustainability issues.

Non-rivalrous is a type of economic good that can be consumed by everyone simultaneously


without its availability diminishing. It is also said to be excludable which means that the
resource can be limited to only certain consumers. This is because they can be owned and
controlled by a particular person or group as companies can limit access to their reserves.
This brings us to the problem of sustainability. Sustainability refers to the ability of an
economic system to meet the needs of the present generation without compromising the
ability of future generations. This means that to be sustainable we should reduce the negative
externalities which means the production or consumption of a resource imposes external costs
on the third parties.

The issue faced here talks about a study conducted by University of Melbourne where they
record deaths of 11,105 people from transport emissions which has been more than the past
figures.

“Pollution from motor vehicles could be killing thousands more than road accidents.”

This indirectly refers to the key concept of sustainability. When the Marginal Social Costs is
greater than the Marginal Private Cost this means that there is a welfare loss being created. To
counter the problem, countries may decide to find solutions to bring the MPC closer to the
MSC.
Figure 1 (Negative externality created by production of gas vehicles)

Negative externalities occurs when production/consumption of a good or service creates a


spillover on third parties. The diagram represents the negative externalities caused by the gas
vehicles in Australia. It identifies the shift in the supply. The marginal social cost considering
only accidents as the negative externality (AB) of vehicles on the roads is portrayed by MSC
and the welfare loss is shown by black shaded region AE*B. Once we take note of the report
by University of Melbourne, Pollution is another negative externality shown by BC, shifting
marginal social cost curve from MSC to MSC1, creating a bigger welfare loss denoted by
total shaded region AEC. The social cost outweighs the private cost in this scenario as the
original graph has added further welfare loss which shifted the current market equilibrium to
point e. Hence, this creates harmful effects on third parties in comparison to the producer
itself. The negative externality creating problems for the future generations because of too
much pollution is a matter of sustainability. Sustainable Development would need to pull
down such high levels of pollution and safeguard environment running alongside
development. The consequences of the negative externality of car pollution leads to global
pollution, traffic congestion and traffic accidents.
Figure 2 (Production of gas vehicles post electric car production subsidy in Australia)

A subsidy is when financial assistance is granted by the government often towards producers
to reduce costs. The diagram represents the subsidy given to the producer to produce electric
vehicles to fight pollution caused by gas vehicles in Australia. It shows the MSC1 move back
to MSC, helping to correct the additional welfare loss created by polluting gas vehicles which
helps build sustainability. By subsidizing the producer, they can decrease the cost, which
helps them sell the product at P* which is more feasible for consumers to buy. The producers
would now sell at Q* and P*. the welfare loss created by accidents on MSC is inevitable. By
doing this, it would decrease the social costs created by gas and oil automobiles which would
be a better way to fight the externalities that Australia is facing. This would be a sustainable
way of development when talking about the future needs.

With the government intervention, the advantages faced would be beneficial. By displaying
lower prices for electric vehicles, this would create a higher demand for the product which
will overall percentage down. On the other hand, with the prices of electric vehicles falling,
the demand for the product could rise drastically. This would create a heavy dependence on
electricity and it would increase the production of batteries and disposals which would create
negative externalities yet again, possibly worsen sustainability. By doing this, the
government would spend their money in other ways in stopping deaths created by pollution
which talks about opportunity cost. Opportunity cost refers to the next best alternative
foregone.

The impact created by the reduced prices of electric vehicle could shift the MSC to the left
extending the welfare loss due to environment impact created by the production of lithium
and lead acid batteries.

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