Assess the view that the Singapore government should use taxes rather than any other economic policies when dealing with the market failure associated with negative externalities. [15]
Analysis of The Question
For this question, the requirement of the question is to explain how the negative externalities will contribute to market failure and how taxes, along with other economic policies can correct such negative externalities.
There is a need to explain in the context of a relevant example, such as the overproduction of road usage which results in negative externalities, such as road congestion to enhance the analysis.
Furthermore, there is a need to evaluate each policy with its merits and demerits in the suggested context.
Source of Information
Part of knowledge needed for this question:
Explain how negative externalities lead to the problem of market failure, using the concept of deadweight loss.
Explain the concept of negative externality using a relevant example (e.g. traffic congestion from road usage)
Explain how taxation can reduce negative externality.
Evaluate the advantages and disadvantages of taxation in the context of the relevant example.
Explain how other policies such as rules and regulations, public education and sale of permits can reduce negative externality.
Evaluate the advantages and disadvantages of the aforementioaned policies.
