Analyzing the Article Based on the Green Bridge-Free-Samples

Question: Critically analyse the The Green Bridge article using the Microeconomics Concept. Answer: The essay aims at offering an economic analysis of the article based on The Green Bridge. The bridge is actually named as Eleanor Schonell Bridge. The bridge has significant environment implication in term of allowing only non-polluting or very low polluting vehicles. Hence, it is given the name Green Bridge. The bridge is established over the river Brisbane. The two connecting locations of the bridge are Dutton Park and St. Lucia campus of University of Queensland. The analysis has been made by projection of economic theories such as demand supply analysis of the market, price elasticity of demand and externalities involved in production and market activities. Markets that involve negotiations and arrangements between group of people and government and central council are generally classified under natural monopolies. This form of market structure exists when there is exceptionally high fixed distribution cost. This requires infrastructure in a large scale to ensure its supply to common people. Road, bridge construction, rail are the examples of this kind of market. Entering in this market require high sunk cost that leads to efficiency loss for the society. Economies of scale are an important aspect of this kind of market (Dunne et al., 2013). A related concept with economies of scale is minimum efficient scale. It is the level of output where all the scale of resources is fully utilized. Figure 1: Market condition with natural monopolies (Source: Loertscher Reisinger, 2014). In the market with natural monopoly Average total cost continuously, fall because of realization of economies of scale. The marginal cost is lower than average total cost for all possible range of output. Elasticity of demand captures the change in demand because of change in price. The change is expressed as a percentage of previous demand quantity. Similarly change in price is expressed as a percentage of previous prices. Demand for all the good is not changed uniformly. There are goods for which change is demand is much greater than their price3 change. Such demands are called price elastic demand. Perfectly elastic demand is of two types relatively elastic demand and perfectly elastic demand (Baumol Blinder, 2015). In case of relatively elastic demand change in quantity demanded exceeds change in price, making elasticity greater than one. In case of perfectly elastic demand, demand changes infinitely for a negligible or very small change in price. Goods having elastic kind of demand include luxury items like sports cars, jewelleries, goods having so many substitutes having sold in the competitive market. There is another category of good where change in demand is proportionately less than the change in price. These are again of two types- relatively inelastic demand and perfectly demand. The former involves less response from the demand side with change in price. The elasticity measure here is less than 1. In the later case, demand does not change at all or associated with a very negligible change in demand (Thomas, Lubinda Angula, 2015). The elasticity measure here is 0. The shapes of demand curve in two respective situations are given below. Figure 2: Relatively Elastic and perfectly elastic demand curve (Source: Varian, 2014) Figure 3: Relatively Inelastic and perfectly inelastic demand curve (Source: Varian, 2014) Externality is a major source of market failure. The presence of externality is realized when activities of one economic agents in the economy have some external affect on some other agent who mare neither directly nor indirectly involve on any of those activities. The cost or benefits of externalities are not captured in the market price. Hence, leads to inefficiency in the operation of market (Chan Gillingham, 2014). In terms of this kind of externality welfare of different agents gets interconnected. However, externalities are classified in two major types based on their impact on social welfare. When externality imposes uncompensated external cost on society then it is called negative externality. On the other hand, when presence of externality increases social benefit then it is called positive externality. Expansion of industries in an economy increases pollution by increasing emission of smokes, dust particles and harmful gases. The people resides in the nearby regions of the se factories fell sick quickly by breathing in the polluted air. Therefore, this is an example of negative externality. Smoke generated from fuels used in the vehicles also increase pollution intensity and same kind of externality (Iossa Martimort, 2015). Taking the externality issue of pollution into consideration the green Bridge allows only cyclist or pedestrian or low smoke emitting vehicles. Market outcome in the presence of negative externality is explained in the following figure. Figure 4: Market with negative externality (Source: Frank, 2014) With externality private and social cost curve differs. For negative externality, social cost curve lies above the private cost curve as shown in the above figure. Equilibrium quantity in an unregulated market is Qp whereas the socially optimum quantity is Qs. Therefore, more quantity is produced than socially desired and hence need government intervention to correct the situation. Construction of Green Bridge can be considered as an attempt to combat negative externality imposed on the society in the form of pollution. The bridge allows only cyclist and pedestrian to use the bridge. Establishment of Green Bridge reflects negotiation between the central authorities in the state like Queensland State government, the city council of Brisbane and common people. Another participant in such activities is the firm that has been given the contract for the construction and engineers, architects who are major participant in the construction process. Another distinguishing feature of the bridge is that is not connected with the roads rather linked to bus lanes, walking path and merely provision for bikers to minimize emission. Another objective of restricting use of the bridge by cars and other motor vehicles is to promote the means of public transportation through introducing faster and direct bus to some major location of University of Queensland. While analysing the a rticle brief discussion is made on price some key concept of microeconomics such as demand elasticity is respect of price and impact of externality and need for public policy intervention. References Baumol, W. J., Blinder, A. S. (2015).Microeconomics: Principles and policy. Cengage Learning. Chan, N., Gillingham, K. (2014). The Microeconomic Theory of the Rebound Effect: Nuances, Externalities, and Welfare. Dunne, T., Klimek, S. D., Roberts, M. J., Xu, D. Y. (2013). Entry, exit, and the determinants of market structure.The RAND Journal of Economics,44(3), 462-487. Frank, R. (2014).Microeconomics and behavior. McGraw-Hill Higher Education. Iossa, E., Martimort, D. (2015). The simple microeconomics of public?private partnerships.Journal of Public Economic Theory,17(1), 4-48. Loertscher, S., Reisinger, M. (2014). Market structure and the competitive effects of vertical integration.The RAND Journal of Economics,45(3), 471-494. Thomas, B., Lubinda, M., Angula, M. (2015). Principles of microeconomics. Varian, H. R. (2014).Intermediate microeconomics with calculus: a modern approach. WW Norton Company.