Chapter 10 details how externalities distort market outcomes. In this comedy ski

by Caaltu · May 21, 2024

Chapter 10 details how externalities distort market outcomes. In this comedy skit, “Senator Collins” attempts to describe an oil spill disaster and the resulting 20,000 tons of crude that spilled into the ocean (This is a fictitious event and would certainly be a disaster if real). The term externalities refers to all costs or benefits of a market activity borne by a third party, that is, by someone other than the immediate producer or consumer. In production, these externalities may occur when a power plant burns high-sulfur coal or an oil tanker spills thousands of tons of oil and therefore damages the surrounding environment. The damage inflicted on the neighboring people, vegetation, and ecosystem is external to the cost calculations of the firm and are not reflected in the price of the products created by the firms. The behaviors of profit maximizers are guided by comparisons of revenues and costs, not by philanthropy, aesthetic concerns, or the welfare of fish.
What might be an example of an external cost associated with the oil production (including oil transportation) described in the YouTube mock interview? If a firm’s price of its product did, in fact, include all external costs, how would this change production decisions?
Video link – https://m.youtube.com/watch?v=SY8DVvOpQfA
(I have added the transcriipt below)
Senator Collins, thanks for coming in. It’s a great pleasure. Thank you. This ship that was involved in the incident off Western Australia this week, the one the front fell off. Yeah. Yeah. That’s not very typical. I’d like to make that point. Well, how is it untypical? Well, there are a lot of ships going around the world all the time, and very seldom does anything like this happen. I just don’t want people thinking that tankers aren’t safe. Was this tanker safe? Well, I was thinking more about the other ones, the ones that are safe, the ones the front didn’t fall off. Well, if this wasn’t safe, why did it have 80000 tonnes of oil on it? I’m not saying it wasn’t safe. It’s just perhaps not quite as safe as some of the other ones. Why? Well, some of them are built so the front doesn’t fall off at all because in this built. So the front wouldn’t fall. Well, obviously not. How do you know? Well, because the front fell off and 20000 thousand tonnes of crude oil spilled into the sea, caught fire. It’s a bit of a giveaway. I just like to make the point that that is not normal. Well, what sort of standards do these oil tankers built? Oh, very rigorous maritime engineering standards. What sort of thing? Well, the front’s not supposed to fall off for a start. And what other things? Well, there are regulations governing the materials that they can be made of. What materials cardboards out and no cardboard derivatives like paper, no paper, no string, no sellotape rubber, no rubber that they’ve got to have a steering wheel. There’s a minimum crew requirement. What’s the minimum crew? Oh, one, I suppose, to the allegations that they’re just designed to carry as much oil as possible, hold the consequences. I mean, that’s ludicrous. Absolutely ludicrous. These are very, very strong vessels. So what happened in this case? Well, the front fell off in this case by all means. But it’s very unusual, isn’t it, Collins? Why did the front book fall off? Well, a wave hit it. The wave hit it. A wave hit the ship. Is that unusual? Oh, yeah. At sea chance in a million. So what do you do to protect the environment in cases like this? The ship was towed outside the environment into another environment. No, no, no. It’s been towed beyond the environment, not in the environment, but from one environment to another environment. Now it’s beyond the environs, not in an environment, beyond the environment. Well, what’s out there? Nothing’s out there. There must be something. There is nothing out there. All there is is sea and birds and fish and and twenty thousand tonnes of crude oil. And what else? And a fire and anything else. And the part of the ship that the front fell off. But there’s nothing else out there. Senator Collins, thanks for a complete void. If we’re out of the environment’s perfectly safe, we’re out of time. You can you book me a cab? But didn’t you come in a Commonwealth car? Yes, I did. But what happened on the front fell off.