Arjun Rawat MARKET FAILURE-[13ECS]-Report 2021 PDF

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Market Failure Arjun CARIntroductionAuckland is New Zealand’s largest and most populated city with a population of 1. million as of (2021). The city continues to grow and expand as being a large city comes with larger issues and in Auckland’s circumstances the problem of traffic congestions. 1 The g...

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Market Failure

Arjun CAR

Introduction Auckland is New Zealand’s largest and most populated city with a population of 1.63 million as of (2021). The city continues to grow and expand as being a large city comes with larger issues and in Auckland’s circumstances the problem of traffic congestions.1The gridlocks influence their personal life, future, and even safety. In Auckland, there are over 43000 registered vehicles on the roads.2 Traffic congestions in Auckland or anywhere in general can cause a lot of havoc such as delays causing people to be frustrated because they are late to work or to an important job interview that could potentially change their future for the perceived greater good, moreover, these delays cause people to move through congested streets and residential roads which often leads to accidents. 3 Other factors to consider e.g, road rage which is 1 https://www.nzherald.co.nz/nz/ranjana-gupta-mitigating-aucklands-traffic-woes-throughtax/ZFLMV3DFJSFG5OU56DHBQIHMMI 2 https://www.stuff.co.nz/business/78241308/43000-more-cars-on-aucklands-roads-leads-toincreased-congestion#:~:text=43%2C000%20more%20cars%20on%20Auckland's%20roads %20leads%20to%20increased%20congestion,-Maria%20Slade15&text=Auckland's%20congestion %20got%20worse%20in,vehicles%20registered%20in%20January%20alone.

3 https://at.govt.nz/about-us/campaigns/spread-the-jam/

another effect of road congestion. Road rage often manifests itself as shouting competitions on the road furthermore intentionally tailgating, careless driving maneuvers and mostly a lack of attention being given to to the roads. Traffic congestion can also have an effect on emergency services, as they will be unable to reach their destination in a timely manner, in the event of an emergency. These are only a handful of the reasons why public transportation usage should be encouraged. Public transportation is a merit good with numerous benefits (Positive Externalities). As a result, society will improve since pollution and traffic congestion will be reduced. When compared to a single-driver car, public transportation emits much less pollution per passenger mile. According to National Express Transit, Busses generate 20% less carbon monoxide, 10 % less hydrocarbons, and 75% more nitrogen oxides per passenger mile when compared to an automobile singleoccupant car. If many individuals utilize public transportation, the traffic conges will be minimised moreover prevented since there will be fewer automobiles on the road, resulting in fewer people arriving late for work, causing fewer accidents, making our roads safer for the perceived greater foreseeable future. The Government of New Zealand is intervening as Auckland continues to grow, becoming increasingly crowded every day. The government is encouraging individuals to use public transportation instead of driving their automobiles. Government intervention will benefit consumers positively and some producers negatively, since the government may implement a policy that reduces producer revenues as there might be a good substitute that has a negative impact on public transport. Market Failure Market failure occurs whenever the market does not result in allocative efficient or equitable outcomes. so, therefore, it is possible to improve someone’s situation without making them worse off. In order for the market to be allocatively efficient, it must meet the following five conditions: ● ● ● ● ●

Externalities Imperfect information Public goods/Private Goods Under-provision of Merit good or service Inequitable distribution of income/wealth

If any of the five factors listed above do not apply to the market’s function then Market Failure will occur, and there is a justification for the government intervening in the economy. Condition 1 - Externalities

Externalities are unintended positive or negative side-effects that fall onto third parties as a result of the production or consumption of a good or service. Public Transportation has many positive externalities of consumption such as reducing carbon dioxide ( CO2 ) emissions because fewer automobiles are being used which is beneficial for the environment as cars are a large part of the global warming problem, people who use public transportation will help and aid in solving this issue by contributing less to global warming by not driving. Another benefit of public transportation is that it eliminates traffic congestion to some extent in overcrowded cities. As previously discussed Auckland City, has an approximate population of 1.63 million people, moreover, with over 43000 vehicles on the roadways. With so many vehicles on the road, traffic congestion reaches an exasperating high level, making it difficult for individuals to get to their destination on time and discouraging others from traveling during peak periods. If people incorporate the use of public transportation, Auckland’s roadways will be far less congested. E.g a common AT transport metro bus will comfortably carry 60 people faster when compared to 60 cars, furthermore, it will not clog nearly as many roads leading to little to no traffic congestion. Despite the fact that these externalities have good effects on the environment and communities, they continue to fail and have no impact on the public transport industry. Although the idea of more people using public transport to minimize pollution is a laudable one, it is failing to have an impact on the public transport industry since people nowadays prefer vehicles. People choose to drive their cars for a variety of reasons, including hauling groceries, picking up their children from school, arriving on time, and so on. Individuals dislike taking groceries on public transport such as buses because it is inconvenient due to the lack of storage space. Moreover, some parents have young children and may not trust them to travel alone, and some people just live too far away from school. As a result, they must be picked up and lastly, people have some influence over how quickly they may travel to their destinations with Google Maps’ providing alternative paths whereas the buses have only one route. All these reasons stated above contribute to the reason why externalities fail to have an impact on the public transport industry. Taking public transportation and minimizing traffic congestion will benefit nearly everyone because there will be less traffic on the roads and people will be able to get to places on time. Even though this externality is meant to improve people’s lives, it is nevertheless problematic, it is still failing to make an impact on the public transport industry. The positive externality graph below illustrates that society will benefit from consuming more of the public transport services and so, therefore needs to be provided at a cheaper price. The private market equilibrium is at point a, at price Pm and output Qm. at the

private market equilibrium this service will be under-consumed(less output consumed by the private market, Qm than what society wants, Qs) and overpriced (available at a higher price by the private market, Pm than what society is willing to pay, Ps). This is the reason why the private market is allocatively inefficient. The social equilibrium is at point b, at price Ps and output, Qs. At the social equilibrium, more of this good is consumed, Qs >Qm, and at a lower price, Ps...