tutor2u | Externalities and the Supply Crunch

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Externalities and the Supply Crunch

Graham Watson

8th September 2021

This story is a consequence of the current supply chain issues, which have limited the access of water companies to the chemicals required to treat waste water.

"The UK Environment Agency.. told water firms they can temporarily reduce the amount of chemicals used for the treatment of waste water." Because of "problems in the chemical supply chain caused by the lorry driver shortage."

As a result, the government have temporarily suspended legislation governing their use.

Is it a dangerous precedent? And if there's a shortage, won't the market simply have increased the price of chemicals and shouldn't the water companies be bearing that cost? They are, after all businesses, and risk is an inherent part of any market?

And what about the external costs? Have these been quantified?

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