Commentary The trends of this article can be

Commentary on: Clean fuels standard coming soon but
maybe not this fall: McKenna

This article
provides information regarding a proposed solution to high pollution levels in
Canada. High pollution levels are a global issue for many reasons; the
production of greenhouse gases has been linked to climate change, and consumers
often end up paying more in the long run to use disposable products or
semi-permanent products in the absence of an eco-friendly alternative.
Consumers also indirectly pay for the damages that high levels of pollution can
cause through their taxes to the government, which the government in turn
spends on research towards climate change and recovery.  The trends of this article can be illustrated
by a negative externality of production graph. A negative externality of
production will have external costs towards consumers- in this case, the high
levels of pollution are an external cost of the producer.

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This graph
illustrates a negative externality of production. A negative externality of
production involves a situation where a third party suffers from the economic
relationship between producer and consumer. Externalities are a type of market
failure. Market failure refers to the failure of the market to allocate
resources efficiently: the goal of all economic systems. In failing to allocate
these resources efficiently, there are unforeseen consequences on a third
party, called externalities, which in this example include those forced to
consume the pollution even if they do not consume the product. In the graph, we
can see that the Marginal Social Cost (MPC) is higher than the Marginal Private
Cost (MPC). This is because of the fact that production with unregulated
pollution has a higher social cost (cost toward a third party) than the cost
the producer incurs. This cost generates welfare loss, which is the amount of people
that decide the social cost is too high to consume these products with high
levels of pollution. If there were no externality here, MSC and MPC would be
equal. This would require the firm to pay for the damages of pollution on the
environment (social cost).

There are other
factors in this example at play, however. There are inelastic goods that would
not have as much of a welfare loss- this is because inelastic goods are not
responsive to price change. Today, cars are quite necessary/inelastic. Furthermore,
there are other factors at play when deciding what the consumer chooses to
consume, like the amount of substitute goods available, and the period in which
the consumer has to pay for the item. 

There is not just
proposed solution alluded to in the article; the Clean Energy Canada campaign
incorporates all the standard ways to correct market failures like a negative
externality of production, making sure that the MSC is equal to the MPC. To do
this, the Clean Energy Canada campaign is mandating that producers incorporate
more “ethanol, biodiesel and renewable diesel into existing fuels…” to diminish
carbon concentration in the production of their goods. Using different types of
fuels could reduce carbon intensity either at the cost or benefit to the
producer (depending on the individual), so keep in mind that the MSC and MPC
would still have to be equal in order to eliminate welfare loss. The article
also proposes taxation, which is another way to eliminate a market failure. Once
we focus on the direct raise in price of production because the producers pick
up the cost of pollution and add it to the cost of production, the MSC and MPC
would ideally be equal. This would eliminate the welfare loss, which includes
the people that deemed the social cost too high to participate in these
economic transactions.

   Additionally, we can infer what this increase
in price due to the increase in the costs of production of fuel will do to the
market for electric or alternative vehicles that do not require fuel. The Law
of Demand states that if the price of a good increases while all other
components stay the same, the quantity demanded will decrease. Since the price
of maintaining a vehicle with gasoline has increased and no other factors have
changed, we can infer that the quantity demanded of electric vehicles will
increase to account for the decreased quantity of regular cars demanded.

 

 

 

 

 

 Commentary on: Clean fuels standard coming soon but
maybe not this fall: McKenna

This article
provides information regarding a proposed solution to high pollution levels in
Canada. High pollution levels are a global issue for many reasons; the
production of greenhouse gases has been linked to climate change, and consumers
often end up paying more in the long run to use disposable products or
semi-permanent products in the absence of an eco-friendly alternative.
Consumers also indirectly pay for the damages that high levels of pollution can
cause through their taxes to the government, which the government in turn
spends on research towards climate change and recovery.  The trends of this article can be illustrated
by a negative externality of production graph. A negative externality of
production will have external costs towards consumers- in this case, the high
levels of pollution are an external cost of the producer.

 

 

 

 

 

 

 

 

 

This graph
illustrates a negative externality of production. A negative externality of
production involves a situation where a third party suffers from the economic
relationship between producer and consumer. Externalities are a type of market
failure. Market failure refers to the failure of the market to allocate
resources efficiently: the goal of all economic systems. In failing to allocate
these resources efficiently, there are unforeseen consequences on a third
party, called externalities, which in this example include those forced to
consume the pollution even if they do not consume the product. In the graph, we
can see that the Marginal Social Cost (MPC) is higher than the Marginal Private
Cost (MPC). This is because of the fact that production with unregulated
pollution has a higher social cost (cost toward a third party) than the cost
the producer incurs. This cost generates welfare loss, which is the amount of people
that decide the social cost is too high to consume these products with high
levels of pollution. If there were no externality here, MSC and MPC would be
equal. This would require the firm to pay for the damages of pollution on the
environment (social cost).

There are other
factors in this example at play, however. There are inelastic goods that would
not have as much of a welfare loss- this is because inelastic goods are not
responsive to price change. Today, cars are quite necessary/inelastic. Furthermore,
there are other factors at play when deciding what the consumer chooses to
consume, like the amount of substitute goods available, and the period in which
the consumer has to pay for the item. 

There is not just
proposed solution alluded to in the article; the Clean Energy Canada campaign
incorporates all the standard ways to correct market failures like a negative
externality of production, making sure that the MSC is equal to the MPC. To do
this, the Clean Energy Canada campaign is mandating that producers incorporate
more “ethanol, biodiesel and renewable diesel into existing fuels…” to diminish
carbon concentration in the production of their goods. Using different types of
fuels could reduce carbon intensity either at the cost or benefit to the
producer (depending on the individual), so keep in mind that the MSC and MPC
would still have to be equal in order to eliminate welfare loss. The article
also proposes taxation, which is another way to eliminate a market failure. Once
we focus on the direct raise in price of production because the producers pick
up the cost of pollution and add it to the cost of production, the MSC and MPC
would ideally be equal. This would eliminate the welfare loss, which includes
the people that deemed the social cost too high to participate in these
economic transactions.

   Additionally, we can infer what this increase
in price due to the increase in the costs of production of fuel will do to the
market for electric or alternative vehicles that do not require fuel. The Law
of Demand states that if the price of a good increases while all other
components stay the same, the quantity demanded will decrease. Since the price
of maintaining a vehicle with gasoline has increased and no other factors have
changed, we can infer that the quantity demanded of electric vehicles will
increase to account for the decreased quantity of regular cars demanded.

 

 

 

 

 

 

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