p.p1 world. Indeed, about 22 pounds of CO2
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The article reports the decision by the British Government to ban diesel and petrol cars by 2040 to minimise the damage to environment and lives of people. It is no secret that air pollution continues to plague the United Kingdom and all of the world. Indeed, about 22 pounds of CO2 are produced when a gallon of diesel fuel is burned. Other than damaging the environment, diesel and petrol cars are very lethal for what regards the lives of people. As shown from the article "Air pollution contributes to the death of more than 40,000 people per year in Britain".
A negative externality occurs when the actions of consumers give rise to negative side-effects on other people. In this case, the action of using and manufacturing Diesel and Petrol cars creates both Negative Externality of Consumption and Production.
Graph on Negative Externality of Production
A negative externality of consumption occurs when the actions of producers give rise to negative side-effects on other people.
Graph on negative externality of consumption:
From both graphs we can deduct that the free market over-allocated resources to the production of diesel and petrol cars resulting in an overproduction related to what is optimum for the environment and the lives of people. This is shown by the Marginal Social Cost and the Marginal Social Benefit. With Marginal Social Cost being, the cost received by producers for producing one more unit of a good or service and Marginal Social Benefit being the benefit received by consumers for consuming one more unit of a good or service. In this case the Marginal Social Cost is greater than the Marginal Social Benefit for both production and consumption .
Corrections of negative consumption externalities involves either decreasing the demand and shifting the MPB curve toward the MSB curve trough regulations or decreasing supply by imposing an indirect tax.
Taking into consideration the first case The Government could impose a percentage change on each litre of petrol consumed by users of petrol cars.
Graph on imposing a direct tax on consumers
Due to this petrol tax, petrol prices would increase further, thus marginal private costs would rise for consumers as wells as the cost required for them to continue using their cars.
Previously users of petrol and diesel cars were not paying the external costs associated in this case the effects on climate change and greenhouse gas emissions. This led the market of petrol and diesel cars to be allocatively inefficient. However as shown from the article this is not the strategy for which The U.K Government will try to bring down the use of petrol and diesel cars.
Thus a way for the Government to intervene could be to impose a tax on the firm manufacturing petrol and diesel cars per unit of pollutants emitted.
Graph on imposing an indirect tax on output or on pollutants
The effect of the tax would be to 'internalize the externality', indeed the costs of petrol and diesel cars would now be paid by producers. Furthermore taxation on diesel and petrol manufacturing firms would provide high incentives to this firms to manufacture non polluting cars. This would lead to lower pollution levels at a lower overall cost.
Implication in terms of cost and impact on society
As shown in the article the Government will propose a scrappage-scheme in order to get off the road as many polluting diesel and petrol cars as possible in a year. Drivers would be given about £8,000 to switch to a fully electric alternative, meaning the government would have to fork out £110m. The impact on emissions of nitrogen dioxide would be to cut them by 0.02%. Undoubtedly this would not be a huge change in the grand scheme of things. When talking about the United Kingdom we have to always consider Brexit, this indeed could lead people to be less confident on investing in a a new car.
Ultimately Excise taxes on goods would be better of when paid by the producers and not the consumers simply because it would be administratively far easier for the Government to collect taxes this ways. However taxing
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