Economics Assignment: UK Pollution, External Costs, and Solutions

This economics assignment analyzes the problems of urbanization and pollution in the UK, focusing on the economic concepts of external costs and negative externalities. The report examines how urban growth, driven by factors like residential and business opportunities, leads to increased pollution, including air and noise pollution. It explains external costs using marginal cost and benefit curves, illustrating how the social cost of pollution exceeds the private cost, leading to market failure. The assignment proposes government interventions such as taxation and subsidies to address pollution, including the imposition of taxes on polluters and the provision of subsidies for pollution reduction efforts. It emphasizes the need for a marginal principle to control pollution and the role of government in controlling negative externalities, concluding that urban economies face various challenges, including traffic, pollution, and other negative outcomes, which can be explained through the concept of negative externalities.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the student
Name of the university
Author Note

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Task 2:
Due to various economic factors, urban sectors experience significant growth as well
as decline by large extend. When the process of urbanization provides benefits, it also
generates certain problems such as pollution or availability of poor housing, which become a
major issue for the respective policy makers (Barnett 2018). The problem of urbanization can
be observed in almost every country across the world. However, this problem becomes severe
in the UK where some of the well-known and largest cities are London, Liverpool, Glasgow
and Birmingham. The entire problems of urbanization can be divided into two common
segments based on the concept of demand and supply as well as external costs (Goddard and
Champion 2018). This essay chiefly focuses on the problems of pollution in the UK and
intends to solve it through providing possible outcomes.
Urban areas all over the world have developed due to their various advantages and
this is true for the UK as well. For establishing residences or profitable businesses, urban
areas have become the chief attraction among people (O'Sullivan, Holt, Warren and Evans
2017). Consequently, total number of population has increased significantly in almost every
city and reached the optimum level. This situation further generates different types of
pollution, such as air pollution and noise pollution that policy-makers of the UK has
considered as a serious issue. Pollution is not a recent phenomenon. Due to traffic congestion,
increasing number of population and establishment of various economic sectors and
industries, the level of pollution in urban areas has increased significantly (Miller and
Hutchins 2017). This situation can be described with the help of economic concept of
external costs.
According to economists, an external cost occurs when the cost of production or
consumption related to a particular product imposes on the third party. In the case of external

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Price SMC
N.o of carsO
SMB
PMB
QmQs
costs or negative externalities, the social cost remains high compared to the private cost
(Harris and Roach 2017). As a result, market failure can be observed. Pollution is considered
a negative externality. Economists explain the social costs related to production with the help
of marginal cost curves and marginal benefit curves. The social costs consider the private
costs that occur during the production process. A particular company or person bears this
private cost though passes on the external costs on the society. Private car owners pay toll tax
or fines as private costs. However, the social costs generated from these vehicles are paid by
the normal citizens (Ambec and Ehlers 2014). In this context, it needs to mention that a
particular entity creates these external costs through generating pollution. With the help of a
diagram, this situation can be discussed precisely.
Figure 1: Negative externality though consumption
Source: (created by author)
According to above figure, SMB and PMB represent social marginal benefit and
private marginal benefits. Moreover, SMC represents social marginal costs. The negative

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consumption externalities occur through consuming certain goods, such as vehicles and noise
pollution. Based on the above figure, people need to use vehicles up to Qs, which implies
social optimal quantity. However, the number of vehicles used in a city is Qm. This happens
because private marginal benefit through using vehicle becomes high compare to social
marginal benefit. As increasing number of vehicles can help a city to improve accessibility,
the curve of private marginal benefit remains high.
Each citizen wants to consume fresh air along with pure water as well as peaceful
environment and roads free from traffic congestions. However, to achieve these goals, a
society needs to bear certain costs. Thus, the policy maker can apply the marginal principle
for fixing the pollution abatement level where the cost of excess abatement can be greater
than the extra benefits. Therefore, to control the pollution, it is essential for every society to
use vehicles where marginal social cost equates with marginal social benefits. However,
market system cannot control pollution. Therefore, government intervention is essential in
this context. The basic tool for controlling negative externalities is tax imposition. The
government imposes tax on vehicles or companies, which generate negative externalities.
Levying tax or fine on polluters based on the level of pollution can be based on the flexibility
criteria. This level of charging fees or taxes can be adopted with the help of a trial and error
process. This process can influence a tax payer to reduce the level of pollution in order to
reduce the tax charges on him (Beeks and Lambert 2018). Moreover, subsidy can also be
applicable to insist a firm for reducing the level of pollution (Dröes and Koster 2016). The
government can bear some essential costs with the help of which a firm can reduce the level
of negative externalities in a city. For instance, the government can provide funds to install
smokeless-fuel-burning fires.
In addition to this, the UK government can introduce more public transport to reduce
the number of private vehicles on road. In addition to this, the government can provide

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subsidies to companies that generate pollution for reducing pollution. However, when the
policymakers cannot recognize actual polluters, they can impose general taxation to cover the
entire population. On the contrary, the policymakers can also set some minimum standards
that each firm and vehicle owners need to follow.
Thus, the above discussion states that urban economy experiences various difficulties
in the form of traffic, pollution and other negative outcomes. This situation can be explained
with the help of negative externality.

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References:
Ambec, S. and Ehlers, L., 2014. Regulation via the Polluter‐pays Principle. The Economic
Journal, 126(593), pp.884-906.
Barnett, J., 2018. The fractured metropolis: Improving the new city, restoring the old city,
reshaping the region. Routledge.
Beeks, J.C. and Lambert, T., 2018. Addressing Externalities: An Externality Factor Tax-
Subsidy Proposal. European Journal of Sustainable Development Research, 2(2), p.19.
Dröes, M.I. and Koster, H.R., 2016. Renewable energy and negative externalities: The effect
of wind turbines on house prices. Journal of Urban Economics, 96, pp.121-141.
Goddard, J. and Champion, A., 2018. The urban and regional transformation of Britain.
Routledge.
Harris, J.M. and Roach, B., 2017. Environmental and natural resource economics: A
contemporary approach. Routledge.
Miller, J.D. and Hutchins, M., 2017. The impacts of urbanisation and climate change on
urban flooding and urban water quality: A review of the evidence concerning the United
Kingdom. Journal of Hydrology: Regional Studies, 12, pp.345-362.
O'Sullivan, O.S., Holt, A.R., Warren, P.H. and Evans, K.L., 2017. Optimising UK urban road
verge contributions to biodiversity and ecosystem services with cost-effective
management. Journal of environmental management, 191, pp.162-171.