1. INTRODUCTION We’ve just learned that within the world of perfect markets, everything is for the simplest. we all know that perfect markets are completely efficient, delivering outcomes that are flawless in every respect except distribution. Economies that employ smoothly because they're filled with perfect markets are neither interesting nor realistic. But because perfect markets provide such a transparent benchmark, economists find it much easier to start from them and compute what's going wrong, rather than start from scratch and compute what's going right. And this method of brooding about the planet will lead us to the cure for crosstown traffic. 2. BRIEF OF CHAPTER Crosstown traffic is all about externalities, so an externality is a third party cost and there can be positive externalities and also negative externalities and negative externality would be traffic and this is the example where he also uses in this chapter. So externality is a type of market failure and market failure can also be caused by asymmetric information which is where are party has more information than another party in a transaction so usually the seller has more information than the buyer does. He used the example of traffic and the idea of externality charges, but externality is hard to measure as well and he touches on that. He also looks at the idea of pollution and trade permits .which incentivizes companies to find cleaner ways of producing what they were producing before.

1. Presented By-
Piyush(23)
Abhilash(26)
Biswajeet(27)
Anuj(28)
Kakoli(29)
BOOK REVIEW
Book-The Undercovereconomist
Chapter-Crosstowntraffic
Author-TimHarford

2. Crosstown traffic is all about externalities, so an externality is a third party cost and there
can be positive externalities and also negative externalities and negative externality
would be traffic and this is the example where he also uses in this chapter. So externality is
a type of market failure and market failure can also be caused by asymmetric information
which is where are party has more information than another party in a transaction so
usually like the seller has more information than the buyer does. He used the example of
traffic and idea of externality charges, but externality is really hard to measure as well and
he touches oh that. He also looks at the idea of pollution and trade permits .which
incentivizes companies to find cleaner ways of producing what they were producing
before.
BRIEFOFCHAPTER

3. • Author Is Very But Few Things Are There In There Life Which
Infuriate Him.
• He Talks About The Market Failures.
• Different Market Failed To Work Properly On Scarcity Power.
• Market Is Dominated By Single Company.
• Market Fails To Work On Decision Makers Due To Lack Of
Information.
• 3 Big Problems Are Called ‘Market Failures’.
• Problem Has Side Effect On Bystanders Called Externality. .
WHAT’SWRONGWITHMYWORLD

4. HOWDRIVERSAFFECTBYSTANDERS
• Many cities like Washington DC, London, etc have
affected the happiness of bystanders due to vehicles.
• They cause severe air pollution.
• From the ‘World of Truth’ the external effects of
conjunction and pollution are important dispatchers.

5. DIFFERENTKINDOFPRICES:MARGINALANDAVERAGE
• In UK; to park on public streets that should have “vehicle excise duty”
• Some taxes and prices are needed for the parking or uses on vehicles
• Policy options
• Raise the up front fee for driving
• Supply better “orange juice”
• Scrap the up front fee
• Drivers do not live in the “world of truth”, they do not pay externalities
for their actions
• Important question of distribution is taxes paid by person on average
• The price drivers pay at the margin matters the most

6. PRICINGSHOULDREFLECTTHEDAMAGE
• How people pay taxes in the European countries.
• Problem faced by the people in rural areas(regarding gasoline)
• Perfect market
▪ It allow us to feel free that we enjoy only if our enjoyment out weighs
the trouble caused to make it all possible
▪ Example- Oil Refining and Gasoline Retailing are perfect market
• We should worry for issues missing from market transaction
▪ Pollution
▪ Global Warming

7. TWOOBJECTIONSTOEXTERNALITYCHARGES
1. Objection that the externality charge is an unfair tax
aimed at a disadvantaged group.
2. Strongly object to the activity that is to be taxed on
the grounds that after the externality charge has
been imposed, the rich will still be able to do
whatever it was that was objectionable
⯀ Why should the rich be allowed to pollute?

8. HOWMUCHISYOURLIFEWORTH?
❖ Focus on steps to be taken-
▪ A driver will be charged for the pollution if he drove in a densely populated area
▪ Different charge, which would be imposed for every trip, for emitting carbon dioxide
▪ The price of the trip would also depend on how clean the vehicle emissions were.
▪ Drivers would face additional charges for trips in congested areas at congested times.
▪ Older buses, which emit the worst pollutants, would be heavily taxed, and this is likely to lead to an
upgrading of their engines.
❖ No luxury tax
▪ It will encourage people to hang on to old, more polluting vehicles: a cheap old car
▪ It will generally be much dirtier than a fancy modern car.
❖ Here the author told all the consumers and there preferences and how to use them for the benefit
of themselves.

9. TWODIFFERENTGAPSINOURKNOWLEDGE
⯀ reduce externalities such as noise,
accidents, pollution and congestion
⯀ Policy, regulation, pricing, command and
control involves implicit or explicit
assumptions

10. THENEWORLEANSEFFECT
• New Orleans has a unique architectural style based on
tax avoidance
• Taxing people based on the number of windows their
homes had
• Congestion charging can change small decisions
• People begin riding buses, there will be less traffic on the
streets

11. BATTLINGPOLLUTIONONTHECHEAP
⯀ Pollution causes acid rain
⯀ Reduce of sulphur pollution
⯀ Switching different methods of power
generation
⯀ Stopping sulphur pollution is expensive

12. ISTHEENVIRONMENTTOOIMPORTANTTO BEAMORAlISSUE?
• Author goes to a panel discussion organized by an environmental
charity
• About the carbon offset program
• About Environmental charity
• Meeting be “carbon-neutral” when you can be “carbon-optimal”.
• Charity as good example, of acting nonsense
• Showboating of an Environmental charity.
• The diaper problem
• He points out on solution on Plastics and Electricity

13. BEINGPOSITIVE
⯀ Role of Externalities (Negative and
Positive)
⯀ Examples of Abraham, Belinda and Craig
⯀ Impact of Externalities

14. TOOMUCHOFAGOODTHING?SOLVINGEXTERNALITIES
WITHOUTTHEGOVERNMENT.
• Externality
• Cost and benefits for a third party who did not agree to it
• Example
▪ Air pollution from motor vehicle
▪ Why problem arises
▪ Positive externality has been dealt with twice over –
✓ By government subsidy
✓ By process of bargaining
• Either solution alone represent an efficient way for a society to deal
with externalities

15. EPILOGUE:WHATISECONOMICSREALLYABOUT?
The three major market failures discussed in this book are “scarcity of
power, missing information, and decisions that have effects on
bystanders”. When an economy fails to live up to any of these three,
trouble is in store. In this chapter, the ‘decisions that affect
bystanders’ are what the author mainly decides to focus upon. The
book introduces the idea of externalities. An externality could be
thought of as a side effect, because it lives outside the original
decision. A good example of an externality is air.