The Automobile and the Environment :: Business and Management Studies

The Automobile and the Environment a) Negative externalities are impacts on 'outsiders' that are disadvantageous to them. The externalities occur where the actions of firms or individuals have an effect on the people other than themselves. In the case of negative externalities the external effects are costs on other people. They are also known as external costs. There may be external costs from both production and consumption. If these are added to the private costs we get the total social costs. An example of negative externalities would be the side effects of production processes e.g. the pollution (noise, dust, vibration) endured by people living next to a quarry. b) From looking at the data we can see that since 1974 the cost of public transport has increased quite rapidly relative to the base rate of 100 compared to the cost of motoring which has steadily decreased. Initially it was the real cost of motoring which increased but by 1975 it had started to decline and continued to do so until the late 1970's. It then increased quickly for a short period until 1982 ending up just above the base rate and remaining there until 1985. It then steadily declined up until 1994. Public transport on the other hand has been increasing since 1974. The real cost of rail travel has increased steadily with a few dips ending up in 1994 at just over 165. The real cost of bus travel has also increased over the 20 year period but more gradually with a sharp rise in 1988 followed by a fall in 1990 but then a final increase ending up in 1994 at just over 140. c) The fact that the cost of oil/petrol fell over the 20year period of 1974-1994 and the cost of public transport rose is why there is such a big gap between them. The cost increases and decreases could have happened for a number of reasons. The cost of petrol decreases when supply is greater than demand or when demand is low. Transport costs could have rose if the demand is too great for it or to increase revenue for councils/government. If public transport needs to be modernised/repaired than also putting the prices up enables extra revenue to spend on these things. d) The classic way to adjust for externalities is to tax those who create negative externalities. This is sometimes known as 'making the polluter pay.' The government needs to assess the cost to a society of a particular externality. It then sets tax rates on those externalities equal to the value of the externality. This increases costs to customers by shifting the supply curve to the left.