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“Most environmental and natural resource problems arise because of market failure, therefore solving these problems could be easily achieved through the appropriate extension of markets.” Critically evaluate this statement with reference to specific examples of pollution, natural resources and environmental public goods.
The market represents a decentralized exchange mechanism that allows society to allocate resources efficiently. (National Oceanic and Atmospheric Administration, 2011)
An example of a perfect market for the supply and demand for oysters is shown in Figure 1. Assuming that the full cost is captured, the equilibrium point b will result in a pareto optimal outcome, efficiently allocating resource and maximizing economic benefits to society. (National Oceanic and Atmospheric Administration, 2011)
Markets fail when they are unable to protect the environment from which their resources come from. The full social costs of exploiting a natural resource is not captured, resulting in an inefficient resource use. Ther…
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