Exam IV

Exam IV - The term market failure is often used in...

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The term market failure is often used in economics to describe situations where goods and/or services do not serve the common interest of the public. There is a long list of types of market failures, but I will focus on a market failure known as an externality. An externality is a cost or benefit from an economic transaction that parties "external" to the transaction receive. Externalities can either be positive or negative (Externality 1). The research topic in which I will be discussing is the international trade of oil. Through the consumption of the oil that is produced in the international market, pollution and global warming occur. The pollution and global warming that occurs is known as a negative externality. The reason to this is because the people consuming the oil that is produced in the market for oil are imposing a cost on everyone in society, because they are polluting the air and air is known as a public good. This means that resources are over allocated to the production of oil, because if costs to "the public" exceed costs to the individual(s) making the choice in areas such as pollution then the good will be over- provided, from society's point of view (Externality 1). Global warming is a hot topic in today’s society but sometimes it is hotter then others, according to Michael Campbell, author for The Vancouver Sun, “Every time the price of gasoline goes up, consumption goes up and the concern of global warming seems to decrease” (Campbell 1). It is obvious that the consumption of gasoline is a major cause of pollution and global warming worldwide, which is why it is considered to be a
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This note was uploaded on 11/29/2009 for the course ECON 212 taught by Professor Hoffman during the Spring '07 term at UNL.

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Exam IV - The term market failure is often used in...

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