Most of the countries in the present times have adopted market economy system. Market economy is an economic system which the economic decisions and pricing are controlled by the consumers and producers which is also known as private sector. However, an economy should not be solely managed by the private sector alone as they might exploit their power. This is why government decided that they should involve themselves in the market economy, to regulate the economy which might improve the market outcome; which is the seventh lesson from the ten lessons of economics.
"There are two broad reasons for a government to intervene in the economy and change the allocation of resources that people would choose on their own: to promote efficiency and to promote equity" (Gans, King, Stonecash, & Mankiw, 2012). Government can promote efficiency in the economy by minimizing the amount of market failures and negative externalities or maximizing the positive externalities. Externalities are the costs and benefits that are realized by the third party in an economic activity. The article that was provided is stating that South Africa government will impose carbon tax on the polluters from all sectors of the economy. Carbon tax is a tax on the use of oil or coal which produces greenhouse gases that harm the atmosphere. When government imposes carbon tax on the firms, it will lead to increase in their cost of production. With the aim of minimizing the production costs, firms might have to reduce their production or invest their capital in buying or researching new equipments that can minimize the waste emitted concurrently can produce more output.
As what is claimed by the article, government of South Africa expected that the imposing of carbon tax will motivate firms to use green technologies and decrease the country's reliance on coal based energy production. This is the sign that