Article Brief 3

Article Brief #3       Syllabus Section 1           Word Count: 516 Written: March 20, 2014

Source: “Montana Says No to Cyanide Poison in Mining – The Progress Report.” The Progress Report. N.p., 13 Jan. 2002. Web. 19 Mar. 2015.

http://www.progress.org/tpr/montana-says-no-to-cyanide-poison-in-mining/

Concepts:   Market Failure, Negative Externalities

Diagrams:   Negative Externalities of Production

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Brief Summary of Issue: Helping extract and process more than 90% of the gold around the world, cyanide is poisoning people – even killing some. Making the process faster and cheaper, this chemical is used all around the world and is creating extreme health concerns for the third party, locals that take no part in the transaction.

Economic Linkages: This issue illustrated the negative externalities of production by showing the health consequences on people.

Production externality is costs of production that a party other than the producer or service has to pay for. They are usually unintended and can have social, economic and environmental effects. Gold, a mineral which 78% of it is consumed for jewelry purposes requires great processing and is very expensive. The article also states that 90% of gold is processed using Cyanide. Firms have been using Cyanide to ease processing the gold; however, this chemical has poisoned countless workers and locals.

Application of Concepts: A negative externalities of production diagram that shows the market failure in processing gold. The diagram illustrates the market failure by the socially optimal being lower than the market.

Screen Shot 2015-05-20 at 11.36.54 PM

As this is an externalities of production diagram, the marginal social cost (MSC) and the marginal private cost (MPC) will not be equal. The processing of gold causes more cost to society.

Due to the external cost, the marginal social cost is higher than the marginal private cost. Here, the market failure is illustrated as the difference between socially optimal (Qso) and the market (Qm). Qso < Qm à Market failure.

The equilibrium point of MSC and MSB is the socially optimal, the best allocation of resources. The blue area is the welfare loss.

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With regulation as a solution, the marginal private cost will shift to the left. This shift represents the cost of production increasing.

The shift equates the marginal private cost to the marginal social cost. Then, the equilibrium points meets the socially optimum; therefore, as the difference between socially optimum and market is eliminated, there is no more market failure.

Evaluation: Market failure teaches us about the failure in allocative efficiency and externalities teach us about the costs the third party is obliged to pay for. Understanding this crucial concept is important for countless real life situations. By looking at the equilibrium of both, it is possible to make conclusion such as, goods whose production creates a negative externality are overproduced and are sold at low prices. Also, because marginal costs are not equal to marginal benefits, resources are being misallocated.

Solutions regarding this issue are controversial. Taxes may potentially reduce the demand, but not enough to reduce the negative externalities. The problem is not with the high demand to supply raito, but is with the production. A possible solution is regulation; the government could take a step in and prohibit the use of the chemical Cyanide. This use of this chemical is not a must, but certainly eases the process. Using other, non toxic chemicals will perhaps cost more and perhaps take longer to process, but will certainly not be as harmful as Cyanide – people will not be poisoned. This potential solution will be effective because this will increase the cost of production, equating the marginal private cost to the marginal social cost. Having equated these two, the equilibrium will meet the socially optimum, eliminating market failure.

Already such actions are being taken; however not all around the world. It is a general tendency that more economically developed countries seek this mineral in less economically developed countries due to regulations. MEDC’s already seem to have some regulations regarding the use of poisonous chemicals; therefore, LEDC’s such as Mali and Niger are targeted to process with Cyanide.

Categories: Economics

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