Inquiry case example - Living in

one of the most polluted cities

in the world

Around 10 million people live in one of China’s most polluted cities – Baoding. One resident claimed:
‘generally, there is smog on most days and we rarely see blue skies now.’ On bad days the visibility
for driving is reduced and headlights and traffic lights are barely visible. There is also a metallic taste
in the air. The poor air quality accounts for very high levels of respiratory illnesses in the city, along
with thousands of deaths. Baoding is in China’s Hebei province where the air is ‘fed’ by the chimney
stacks of coal and steel plants.

Questions

a. Explain two benefits to the Chinese economy of the production of coal. [4]

b. Explain what you understand by the term market failure. [4]

a.
1. Coal is a fuel of most of power generators, which can increase the
efficiency of most industries, then causes the output of those industries to
increase
2. The export of coal to other countries can bring profits to the Chinese
economy

b.
Market failure is basically the inefficiency of allocation of resources. Goods
and services are inadequately distributed, which will induce welfare loss
for the society. The cause of market failure mainly comes from external
costs, which MSB is lower than MSB, or MSC is higher than MPC