http://www.gateway.ualberta.ca/view.php?aid=7626
This article suggests that there is a lack in government control over the growth of Alberta's economy. The Oil Sands, which is Alberta's main economy, causes a great amount of pollution, which is a negative externality.
The critic in this article suggests that Alberta's government has a "greedy and short-sighted" view, that pollution leads to global warming which is a negative externality "to end all externalities". I agree with the author of this article because it is not wise for the government to ignore this market. This is because, the negative externality that the pollution causes actually increases the cost of production, which shifts the supply curve inward from the privately beneficial supply curve to the socially beneficial supply curve. This inward shift of the supply curve causes the equilibrium quantity produced to decrease and the price of the product to increase. As a result, for the Oil Sand Market to be socially beneficial, less of the good should be produced, and prices of the Oil should be adjusted higher.
In addition, the government should tax this particular good, because taxing it would decrease the supply curve and shift the supply curve inward from the privately beneficial supply curve to the socially beneficial supply curve.
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Enno,what is this article? It is an editorial, first of all, so it expresses an opinion about a topic. This is probably not an appropriate article for an IB commentary. Furthermore, your beginning analysis here lacks an understanding of the impact of negative externalities on costs of production. You say the "externality the pollution causes increases the cost of production". This does not make sense, the whole point of "externalizing" costs is that the firms don't have to cover those costs, society does. You better re-read the Mankiw chapter, and find a better article. It does not necessarily have to be about pollution, now that you know about public goods, merit and demerit goods... market failure comes in many forms. I suggest you find a real news story too, not an editorial. Get back to work and post to your blog soon so I know you're on top of this...
Mr. Welker
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