Question

Explain, in your own words, the difference between direct and indirect measures of pollution control. What is cap and trade? Is cap and trade a direct or indirect measure of pollution control?

Provide three examples of externalities in consumption and externalities in production and identify whether they are positive or negative externalities.

Answer 1

Direct measures of pollution control is when the measures taken by the authorities directly impact the amount of pollution whereas indirect measures of pollution control is when the amount of emissions is affected due to some other activity whose main objective is not pollution control.

The cap is a program of the government inorder to cap the amount of emissions of green house gases, especially carbon dioxide from industries. Trade, on the other hand is a market for different companies inorder to buy and sell allowances that allow them to emit only a limited amount. Cap and trade is the most effective direct pollution control measure.

Consumption externality:

1. Consumption of Cigarettes: If a person smokes a cigarette in a public place, it is a negative externality for the non smokers that are near him and are inhaling the same air.

2. Road congestion: Since individuals use roads for their benefits, they reduce the road space for others which is a negative consumption externality.

3. When I get a vaccine for a disease so that it does not spread, it is an example of a positive consumption externality for those around me.

Production externality:

1.   The construction of a railway line in a remote area will have a positive impact on local and small businesses which would be a positive production externality.

2. A farmer in his farm, lets bees build their hives which helps in the pollination of his crops and this is an exaqmple of positive production externality.

3. Noise pollution: If a person is playing very loud music in his house, late at night, it disturbs the sleep of his neighbours. This is also an example of negative production externality.