Wednesday, December 12, 2007

Response to: Who should pay the external costs of driving?

Pollution is the most major concern that is on the minds of the citizens of the United States. As a result of pollution there are greater chances of consumption of CO2 andn other dangerous chemicals. This can lead to health problems that might not be able to be paid off will just insurance and health costs continue to increase. There was an idea to put a tax on gasoline so that health costs can be paid for by that tax. This has created a controversy and like every argument, there are pros and cons that go along with the subject. The pros for this tax are that if there are any porblems with any person's health then their medical care can be paid for by the tax. Harmful chemicals that are released into the air by the burning of gasoline can cause many different health problems like cancer and birth defects. The procedures that will need to be put in place to fix these health problems will cost a lot of money and with this tax, the people affected can pay for this medical care. Another pro about a tax on gasoline is that with a tax in place for health care other things that need to be paid for with a tax can be funded as more money is going into the economy. Why leave anything untouched that is needed to be funded? This new money could be put into for health care leaving other money left over to provide some help on other problems going on in the country. One con about this tax that is to be put on gasoline is that people will have to more money when they fill up their car at the gas pumps. This tax will cause an out cry from the people of the U.S. as they will complain about the new outrageuos prices that will now be on gasoline. Another con about this tax is that gas prices will increase and new pollution laws will be in place and put a limit on having automobiles on the road that have harmful emissions and use up a lot of gas mileage. Because of this new limitation, thousands of cars will be taken off the road and thousands of families will have to be required to purchase new cars and trucks.

1 comment:

Minghua Li said...

Drew: for this one you did not score. You missed to mention exteranlity. Here are comments for improvement:

1. Typos/grammatical erroers:
. andn other dangerous ( andn other dangerous);
will just insurance and health costs continue to increase(with just insurance and health costs continue to increase);
people will have to more money (people will have to pay more money )

2. Economics fixes:
1) You did not mention anything bout externality and in this case it is negative exertanlity. Imposing taxes on gasoline is a way to deal with the external cost that is not born by people who is directly involves in this transaction. Whenever, negative exteranlity exist, there is always over-production by the free market. Please read chapter 4 and revise your answer.

2) Another con you mentioned is people will have to pay more money on their gasonline. As a result what happened to their disposable income? What will happen to CONSUMPTION and what will happen to AGGREGATE DEMAND? If you can sort this out and use the AS-AD model you can prove this can lead to a recession for the economy. That would be a powerful argument against such taxes.