State one of the characteristics of common access resources.
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State one of the characteristics of common access resources.
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Text A, Paragraph 1
In 2023, the construction of new housing developments in London led to an increase in pollution and traffic congestion, prompting the local government to consider new policies. Some economists have suggested that the city's handling of this issue represents a clear example of market failure.
Define the term market failure indicated in bold (Text A, paragraph 1).
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Text C, Paragraph 3
In 2023, the government of New Zealand announced a major investment in public healthcare, citing the broader social benefits that could arise from improved health outcomes. This investment is expected to generate significant positive externalities, with potential benefits for the economy as well.
Define the term positive externalities indicated in bold (Text C, paragraph 3).
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Text B, Paragraph 3:
Several factories in China have been cited for contributing to air and water pollution, which has had harmful effects on nearby communities. These industrial activities create negative externalities of production, as the pollution impacts the health of people who are not involved in the production process.
State two negative externalities of production as indicated in bold (Text B, paragraph 3).
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Text C, Paragraph 1
In the Amazon rainforest, illegal logging continues to threaten the long-term viability of forests, which are considered common pool resources. In contrast, public goods such as national parks are maintained by the government and are available to all without fear of depletion.
Outline the difference between common pool resources and public goods as found in (Text C, paragraph 1).
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Text D, Paragraph 2
In 2023, several European countries expanded their use of tradable pollution permits. This system allows companies to emit a certain amount of pollution, with the aim of reducing overall emissions.
Define the term tradable pollution permits indicated in bold (Text D, paragraph 2).
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Text E, Paragraph 2:
In 2022, the government of Canada introduced a carbon tax, increasing the cost of producing goods that rely on fossil fuels. As a result, many companies began to explore alternative energy sources to reduce their tax burden.
Outline the impact of a carbon tax on companies, as indicated in bold (Text E, paragraph 2).
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Text B: The state of Indonesian air
1. Over the past 20 years, Indonesia’s air quality has become increasingly worse, from one of the cleanest countries in the world to now sitting in the top 20 for most polluted. The most significant spike happening in the last 3 years, attributed to intense forest fires, transport and large-scale construction as the economy has developed. The wider impact from high air pollution is beginning to be felt, with life expectancy predicted to be cut by 1.2 years if pollution levels remain at the current level.
Using an appropriate diagram, explain how “large-scale construction” may lead to market failure within Indonesia (Text B, paragraph 1)
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Text A, paragraph 6
Ghana is the 2nd largest recipient of FDI in Africa with $2.65 billion worth of FDI recorded for 2020, and $2.6 billion in 2021. However, those opposed to FDI state that the short-term gain is outweighed by reduced labour protection. The government of Ghana should focus on protecting the overuse of common pool resources by MNCs, like previously protected freshwater lakes, reducing the sustainable use for future Ghanaians.
Using a diagram, explain why the government might consider protecting resources such as freshwater lakes (Text A, Paragraph 7).
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Explain two reasons why a government might implement carbon taxation.
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Overall, the fast fashion industry faces sustainability challenges:
Fast fashion promotes a culture of overconsumption leading to excessive waste.
The production processes involve the use of toxic chemicals that contaminate water sources, harm ecosystems, and pose risks to human health.
The fast fashion industry has a significant carbon footprint; reliance on fossil fuels, energy-intensive processes, and long supply chains contribute to greenhouse gas emissions and climate change.
Using an externalities diagram and the information provided, explain how the fast fashion industry is responsible for the generation of negative externalities.
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Fast fashion refers to the production and retailing of trendy clothing items at a rapid pace and low cost. Some popular fast fashion chains worldwide are ASOS, H&M, Shein, Uniqlo & Zara.
Cotton plays a prominent role in the production of fast fashion garments. India is the world's largest producer of cotton.
The market for cotton in India is perfectly competitive. Figure 1 illustrates the average cost (AC) and marginal cost (MC) curves of Firm A, a typical Indian farmer, operating in the cotton market. The market price of cotton is $18 per kg.
Cotton is a water-intensive crop. According to the WWF it takes more than 20,000 litres of water to produce just one kilogramme of cotton. The demand for cotton in the fast fashion industry contributes to increased cotton production worldwide and is thus responsible for the negative impact on water resources.
Still, there are countries that heavily subsidise their cotton farmers so that they are able to meet the high global demand.
The United States has implemented subsidies and support programmes for cotton farmers. Under the Cotton Transition Assistance Program (CTAP) the U.S. government pays $0.03 per kg of cotton while 8.3 billion kgs of cotton were produced in 2021 in the U.S.
Overall, the fast fashion industry faces sustainability challenges:
Fast fashion promotes a culture of overconsumption leading to excessive waste.
The production processes involve the use of toxic chemicals that contaminate water sources, harm ecosystems, and pose risks to human health.
The fast fashion industry has a significant carbon footprint; reliance on fossil fuels, energy-intensive processes, and long supply chains contribute to greenhouse gas emissions and climate change.
Policies addressing the negative impacts of the fast fashion industry are being implemented:
The European Union's REACH regulation and the United States' Toxic Substances Control Act (TSCA) aim to regulate chemical use in the textile industry.
Germany introduced the Green Button certification for textiles, which guarantees that products meet strict social and environmental standards throughout the supply chain.
In an effort to raise awareness, in Japan the Sustainable Fashion Summit takes place, to educate the public about sustainability issues in the fashion industry and to promote sustainable practices.
On an international level, the United Nation’s Fashion Industry Charter for Climate Action initiative is encouraging companies to set targets to reduce greenhouse gas emissions and transition to low-carbon and circular business models.
Currently, indirect taxes early on in the production of fast fashion garments do not exist. Value-added taxes (VAT) or sales taxes on the retail price of clothing do exist, but these do not specifically target fast fashion. For instance, the average monthly spending per person on clothing in the UK is £76.53 while the VAT is 20%.
Using the text/data provided and your knowledge of economics, recommend a policy that could be introduced to promote sustainability in the fast fashion industry.
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As a result of the risk of climate change and the associated costs, many economists agree that travel by rail, instead of plane or gasoline-fueled engine cars, should be promoted. However, even in Austria, the annual growth of passenger rail travel has slowed down to only 1.04% in 2021 compared to 5.85% in 2010.
Rail networks are considered an example of a natural monopoly.
Many governments, including the Austrian government, have been promoting investments in the rail sector such as electrification and other sustainable technologies. These investments will increase Austria’s infrastructure and are expected to increase, both over the short-term but also over the long-term, Austria’s economic growth.
The Austrian government is also considering implementing regulations that would require railway firms to part of any supernormal profits earned in upgrading the railway sector. Many members of parliament are sceptical.
Starting in January 2023 individuals in Austria can apply for a government subsidy up to €5,000 to buy an electric vehicle as part of the e-mobility scheme. The Federal Ministry for Climate Protection, Environment, Energy, Mobility, Innovation and Technology (BMK) has earmarked €95 million for 2023 alone, which is part of the government’s aim to drastically reduce carbon emissions from transport in Austria.
It has been argued that Austrian citizens who typically implement rational consumer choice would assess the costs and benefits of using their conventional gasoline-fueled cars and, as a result, would switch to alternative cleaner and more sustainable forms of transport. Unfortunately, many are still not.
To address mounting environmental issues the Austrian government is even considering using consumer nudges to increase the use of cleaner and more sustainable forms of transport by Austrian citizens.
Using the text/data provided and your knowledge of economics, recommend a policy that the government of Austria could introduce to increase the use of environmentally sustainable travel.
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Using real-world examples, discuss two relevant policies that could be used to address the issues caused by common pool (access) resources.
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