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www.hoddereducation.co.uk/economicreview Volume 34, Number 1, September 2016 Answers Climate change: why is a deal necessary? Jon Guest This resource provides answers to the questions set in the article on climate change, on pp. 2–5 of the September 2016 issue of ECONOMIC REVIEW. Question 1 The atmosphere is a common resource, i.e. it is non-excludable and rival. What do economists call goods that are excludable and non-rival in consumption? Provide some real-world examples. Economists call goods that are excludable and non-rival in consumption club goods. Some real-world examples include: Wireless internet connection on a train where a password is required A satellite television broadcast Music-streaming services provided by businesses such as Spotify and Apple A non-congested toll road In each of the above examples a comparatively low-cost and effective system can be implemented, which guarantees that only those people who have paid for the good are able to enjoy the benefits they provide, i.e. they are excludable. They are also non-rivalrous in consumption because if one or more person increases their consumption of the good or service it does not prevent any other or ‘rival’ consumers from enjoying the benefits they provide, i.e. they do not get ‘used up’ when one or more people start consuming them. Question 2 In the article is was assumed that the marginal external cost of producing steel remained constant, i.e. the MEC curve was drawn as a horizontal line in Figure 1. Assume now that at low levels of output the production of steel does not generate any negative externalities. However, once a certain level of output is reached in the market (Q*) the production of additional units of steel does result in rising marginal external costs. Redraw Figure 1 clearly illustrating any deadweight welfare loss. See the short video at http://tinyurl.com/zyzq8qa Hodder & Stoughton © 2016 www.hoddereducation.co.uk/economicreview www.hoddereducation.co.uk/economicreview Question 3 Figure 1 illustrates the impact of negative externalities in production on a perfectly competitive market. What impact would negative externalities in production have on a market that was a pure monopoly? See the short video at http://tinyurl.com/h4v3gzz This resource is part of ECONOMIC REVIEW, a magazine written for A-level students by subject experts. To subscribe to the full magazine go to www.hoddereducation.co.uk/economicreview Hodder & Stoughton © 2016 www.hoddereducation.co.uk/economicreview