Question

1. China has grown by leaps and bounds over the past 40 years, however, that growth has come at a cost. Unbridaled industrial expansion resulted in massive levels of pollution in the rivers, ground, and air. The average air pollution level in China is roughly seven times the safe limit in the United States. In 2017, 1.2 million deaths were related to air pollution. It’s a place where going for a run might kill you sooner, as the exercise benefits are offset by the health damage from breathing the air.

   Rapid industrialization combined with the world’s largest population has made China the world’s worst pollutor, and this pollution has a significant global effect. In 2013, the Chinese government declared war on pollution and have managed to bring down pollution levels. They have also pledged to cut carbon emmissions by more than half by 2030. As a part of this initiative, China closed the dirtiest factories and mines, and while this helped with pollution, the reduced output of steel and aluminum impacted world market prices for these commodities. They are also attempting to shift from coal to cleaner-burning natural gas.

   As Chinese incomes have risen, so too has their consumption of cars, larger homes, refrigerators, and air conditioners. Given the large population, this private consumption has contributed to the overall pollution conditions. Chinese consumers, fed up with pollution, have indicated they are willing to curb some activities and pay more for cleaner products.

   Consumers that make eco-friendly purchases impart a positive externality on others in society. Why might they under-consume these types of products?

   		Consumers have to buy them since the government tells them to buy them.
   		Society doesn’t help pay for an individual consumer’s purchase.
   		They don’t want to help the environment.
   		Society doesn’t need the positive externality.

2. Clean air is considered a public good. What is the free rider problem associated with it?

   		People who ride on mass transit without paying contribute to the pollution.
   		Businesses and consumers are subsidized in order to produce more pollution.
   		When some consumers buy "green" goods others get the benefit even if they buy "dirtier" products.
   		The government can’t tax the consumers or producers for polluting the environment.

Answer 1

1. Correct option: Society doesn't help pay for an individual's consumer purchase

Reason: Despite inflicting a positive benefit on the society, society doesnt help the individual pay for the purchase, making the consumption less than the socially efficient level.

2. Correct option: The government can't tax the consumers or producers for polluting the environment

Reason: Since clean air is a public good, it is available for free for everyone and it non excludable and non rival in nature. This means no one can stop anyone from using or polluting it. This means the government cannot tax individuals even if they are polluting the environment.