Download Answers: Climate change

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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
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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.
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Hodder & Stoughton © 2016
www.hoddereducation.co.uk/economicreview