Why pollution is an example of market failure?

1 Answer
Apr 11, 2018

It represents inefficiency.


Pollution can very accurately be described as waste. When a lot of waste is produced, something is clearly not very efficient. In markets, industry, business, etc, the goal is to be as efficient as possible because that means you're saving money, and that means you're maximizing profits.

Thus, if we are putting out a lot of pollution, we're actually operating very inefficiently, and that means we're wasting massive amounts of money. In the eyes of a market or economics, this is a massive failure.

Just a little analogy: Apple has a buyback program for many of their products so that you can trade in your iPhone or other device for a new one. They can't resell your trade-in, but they can send it to a facility to be disassembled, and the parts and materials can be made into new iPhones, iPads, etc.. This is an excellent decision because many of the materials (eg mercury, zinc, and other rare metals and minerals) are very expensive to mine. They are much cheaper to simply recycle.

In fact, the price of refining aluminum (which is used in Apple laptop casings) uses 5% of the energy that the process would if they did it from raw Bauxite (where aluminum comes from). When you think about the cost of that energy and how many laptops Apple makes, they're saving a ton of money by recycling their aluminum.