Copyright 2002 TecEd

The environment is constantly damaged by our excessive use of cars! Most developed economies love the idea of private transport and getting people to use their cars less is extremely difficult. You may well be learning to drive at the moment or even hold a driving license: would you go back to using public transport (buses and trains)?

Most governments in developed economies are committed to reducing the problems caused by private transport, but this is difficult. In general they want to reduce the use of cars and increase the use of public transport. They also want to reduce the damage caused by cars.

Task

1. Every time you drive a car you pay some private costs - petrol for example - but you also pass on costs to the rest of society i.e. you damage the welfare of people around you. These are called external costs.
• Identify three external costs of driving a car. (E2)
• Explain one of these external costs. (C1)
2. You have been asked by the government to propose ways in which the external costs of driving a car could be reduced.
• Explain one way you could use indirect taxation to reduce these external costs. (C4)
• Explain one way you could use subsidies to reduce these external cost. (C4)
3. Suppose that both of your ideas in 2 a and b are used by the government. Car manufacturers are concerned about your policies and are thinking of ways to avoid them (legal ways, that is!)
• Analyse two ways a car manufacturer might react to your policies.(A3)
• Evaluate the likely success of your policies. (A3)