Cambridge International as and a level Economics Ebook

1
It seeks to include all of the costs and benefits, not just 
private ones.
SELF-ASSESSMENT TASK 
6.4
India reveals world’s cheapest car – but what are the bigger costs?
The world’s cheapest car was unveiled by India’s Tata 
Motors yesterday with a US$2,500 price tag that brings 
car ownership into the reach of tens of millions of people, 
prompting fears about its environmental impact.
Critics say the Tata Nano will lead to millions more cars 
hitting the already clogged up roads in the country’s 
teeming cities. They are concerned that this explosion 
will add to mounting air and noise pollution problems.
Company chairman Ratan Tata believes that the Nano 
will be the least polluting car in India and claims that it 
meets stringent EU emission standards. He also believes 
that this so-called ‘People’s Car’ will provide India’s 
growing middle classes with the personal mobility and 
status symbol they long for. For the masses, however, 
widespread poverty will limit car ownership. For a 
rickshaw driver in Delhi, earning just over US$2 a day, the 
so-called People’s Car amounts to more than three years’ 
earnings. 
Source: 
Adapted from Associated Press/Reuters, 
South China Morning Post
,
 
11 January 2008.
1
Identify and explain:
a
a private benefi t and an external benefi t
b
a private cost and an external cost 
arising out of Tata’s production of the Nano.
2
Discuss whether the production of the Nano is a 
case of market failure.
The Tata Nano – the world’s cheapest car
138
Cambridge International A Level Economics

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2
It 
oft en has to impute a 
shadow price 
on costs and benefits 
where no market price is available. For example, in the case 
of transport projects there is a need to value travel time 
savings. Other situations are how to value the benefit of 
cleaner air or being able to live in a less noisy environment.