Markets & Economy a Budget Essay

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Rational firms will choose the lowest-cost option between the two. The market is expected to be efficient, so that while some firms will find it cheaper to pollute, other firms will find it cheaper to install pollution abatement mechanisms.

Ultimately, the system will seek to deliver the lowest per-unit cost of abatement. This will be achieved because the firms that are going to abate their pollution are the ones for whom the cost of abatement is lower than the cost of polluting. With these firms focused on their abatement efforts, they will deliver a greater degree of pollution abatement at a lower per-unit cost with the marketable permits than any other system.

To see the value in this system, the alternative must be considered. If firms are mandated to reduce pollution, they will do so to bring themselves under the maximum allowable pollution levels. However, firms will have no economic incentive to reduce pollution below the mandated maximum level. Thus, while some abatement will occur, this amount will effectively be capped at the current level of surplus pollution. The marketable permits provide economic incentive for firms to continuously reduce their pollution levels. Firms that can reduce more, and more cheaply, will do so, the result being a net reduction in pollution when compared to alternative tactics.

4. GDP measures economic output, but there are many types of output that are not included in the GDP measures. These other outputs, however, can have a significant impact on our quality of life. Therefore, the following three additional outputs are proposed. The first is pollution. Pollution is typically an externality that is not included in the GDP but which can have a substantial impact on quality of life. Pollution would be subtracted from the economic indicators in the GDP, reflecting the reality that x level of growth with less pollution is more desirable than x level of growth with more pollution.

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Another measure would be a freedom index, reflecting civil freedoms in society. Civil freedoms are contributed to by both government and the people. If laws are passed to improve freedoms such as freedom of speech, freedom of the press, and any other personal freedom to act in a way that does not do harm to others, then this should be added to the GDP. It is important that society recognize the value of improving freedoms and strive to provide even greater freedoms in the future.

A third measure that should be included in the GDP calculation is income parity. This can be a multiplier on the total GDP as calculated using the economic measures and the measures above. Essentially what this recognizes is that GDP's main value is not in its raw number but in the degree to which economic (and other) prosperity is shared by all. GDP per capita figures for oil-rich third- and second-world countries, for example, can be very high, but with all of that wealth going to the sovereign/ruling class, the rest of the people living no differently than those in neighboring countries with far lower per-capita GDPs. By adding a multiplier for income parity, a nation's economic success is going to be based in part on its ability to share that success among its citizenry.

With these three measures added to GDP, the gross domestic product measure will paint a more accurate picture of a nation's output. The environmental externalities will be considered, as will personal freedoms and….....

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