Exam (elaborations)
ECS3704 Assignment 1 Semester 2 2024
- Course
- Public Economics (ECS3704)
- Institution
- University Of South Africa (Unisa)
ECS3704 Assignment 1 Semester 2 2024 COMPLETE ANSWERS
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ECS3704Assignment 1
Semester 2 2024
QUESTIONS WITH ANSWERS
[School]
[Course title]
, ECS3704 Assignment 1 Semester 2 2024
Analyse with the aid of a diagram, why it may be necessary for government to intervene in the
case of pollution created by steel production. Using the same diagram, explain the policy options
at the disposal of government to address this issue.
ECS3704 Assignment 1: Government Intervention in Pollution from Steel Production
Introduction
Pollution from steel production is a classic example of a negative externality, where the activities
of steel producers impose costs on society that are not reflected in the market price of steel. This
results in a market failure, as the market equilibrium leads to overproduction and excessive
pollution, harming the environment and public health. Government intervention is often required
to address this inefficiency and ensure that the social costs are taken into account.
Diagram: Market Failure Due to Negative Externality
Below is the explanation of the diagram that would accompany this analysis:
1. X-axis: Quantity of steel produced.
2. Y-axis: Price/cost of steel.
3. Demand Curve (D): Represents the marginal benefit to consumers. This curve shows
how much consumers are willing to pay for different quantities of steel.
4. Supply Curve (S): Represents the marginal private cost (MPC) of producing steel. This
curve reflects the costs borne by the producers without considering the external costs.
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