TOLFA Segment 8, Question 4

Suppose it were beyond question (and today, it's not) that "global warming" by excess CO2 emissions would definitely cause climate changes with enormous catastrophes worldwide. Suggest how a free market would prevent or postpone the problem. Impossible. The only answer is a properly enforcible Kyoto-style inter-government treaty, or a single world government with power to prevent harmful emissions everywhere.
Free markets work first by allocating prices - as millions of individuals trade, news about the prices agreed signals other parties to act in their own interests, for profit. Thus, news of an upcoming icecap meltdown will slash property prices along low-lying seashores, and/or powerfully incent inventors to find and offer low-price alternatives to carbon-based fuels.
Hydrocarbon fuel users basically don't care what happens to spent, exhaust gases because they don't have to pay for them - today they can and do "externalize the cost" of disposal. Only two ways exist to fix that: punishment by government, or reward by the market - stick, or carrot. Carrots work. Sticks don't. Only a free market with full property ownership rights can keep those costs where they belong and maximize the speed of development of alternative fuels.

Don't hurry away; even when you've got the right answer, try clicking on the others to see why they are wrong! Then when you have correctly answered this make notes in your student notebook, go to Question 5.

Segment 8 Page