Economic Issue Analysis

“Standard economic theory states that any voluntary exchange is mutually beneficial to both parties involved in the trade. This is because either the buyer or the seller would refuse the trade, if it won’t benefit both” (Millard, 2012, p. 11). Hubbard, Garnett, Lewis, and O 'Brien, (2010) said that a competitive market achieves economic efficiency by maximising the sum of consumer surplus and producer surplus. But that result only holds if there are no externalities in production or consumption. (p. 147) Millard (2012) demonstrates that an exchange can cause additional effects on third parties. From the perspective of those affected, these effects may be negative (pollution from a factory) or positive (honey bees that pollinate the garden). Negative consumption externality is defined as when the private benefits to consumers of a product are greater than the social benefits of its consumption. There are spillover costs (external costs) resulting from the consumption of the product born by society as a whole. Millard also holds that welfare economics has shown that the existence of externality results in outcomes that are not socially optimal. In Poland, among 1,000 inhabitants, there are 383 vehicles. For the inhabitants, they benefit from the convenience with vehicles. If they want to go to shopping centre, there is no need for them to go on foot. As a result, time and energy are saved. However, in this case, the social benefits are far less than the private benefits. Poland experiences 49,500 road crashes per year. Current statistics show an average of 5,582 persons killed and 63,000 persons injured year. That translates to roughly 15 persons killed per 100,000 inhabitants (11 persons killed per 100 road crashes). It means that when vehicle owners use road, they impose higher accidents risks on all other users. As the figures show, the inhabitants without vehicles are less than those with. Even though they do not use vehicles, they are still in danger.

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