Beijings air pollution is mainly from using of cars and the production of the factors. The air pollution in Beijing is a negative externality. Negative externality is cause by over consumption or production which outcome a spilled over negative effect which affected the third party, in this case which is the whole society in Beijing. The consumers of use of cars are consuming at the marginal private benefit instead of the marginal social benefit, which include the cost of the air pollution they produced by consuming the use of cars. When, market failure exists. A simply diagram can explain this clearly:
Market of use of car
In above diagram, it shows the market of consumption of use of car. Under free market condition, consumers will consumption at P*Q*(MPC=MPB). However, the social optimum level is P1Q1. Its because consumers ignore the negative externality from their consumption of the use of car to the whole society of Beijing. MPB > MSB, market failure exists as a result (yellow area).
As stated in the article, air quality in Beijing has been over declining. Its air condition has been poor polluted by both over consuming of use of cars. This is a negative externality to the whole society and its a market failure. There are few different ways for government to solve this problem via either consumers or producers.
First, government can put a higher taxation on cars. This increases the cost of the car therefore price of the car will increase. According to the law of demand, quantity demand will fall when price increase, therefore the quantity demand of car will decrease. This minimizes the amount of consumers entering the market. An imperfect side of this action could outcome a small economic decline but its tiny compare to Chinas manufacturing
Second, the China government can do what they did during the Olympics that allowed private cars on the road by their license plate number. Legislation is a type of determinant of quantity demand. It limits the quantity demand limiting the use of car. However, a small amount of people might have 2 different cars which have 2 different license plate number that allow them keep driving private cars everyday but this is just a small amount of consumers have this ability which can be ignored.
Third, government can also use advertisement to reduce the air pollution. Government can popularize the harm of overconsumption of use of car to aware from people keep using cars. Government can also focus on sustainable development. Advertisement is a type of demand determinates affecting consumers demand on a product. In this case advertisement may be able to reduce the demand of use of car thus reduce the air pollution thats caused by car. A simple diagram may show this situation:
Market of consumption of use of car
The diagram shows the market of consumption of use of car. Under free market condition, consumers will consumption at P*Q*(MPC=MPB). However, when government increase the tax of car or add new legislation, the MPB curve will shift from MPB to MPB1 because the decrease of quantity demands of consumption of use of car. Thus, under free market condition, consumers will consume at P2Q2 and market failure reduces down from the yellow area down to the purple area.
Above investigate is only about overconsumption of use of cars another reason as above mention could be over production of factories which outcome air pollution to the whole society. Government can increase tax on the firm that is overproducing goods, which out come air pollution that affect the whole society. Quantity supply of production of factories will fall as an outcome. Also, China government can introducte tradable permits to fix the amount of polluted air every year, here a government issues license tradable emission license to producers and they are allowed to pollute up to a designed level and the amount of pollution are allowed to sell their permit to other producers. These are all doable solution to minimize the amount of air pollution in Beijing, thus to reach the measurement standard of tiny particles that are 2.5 microns or less in diameter.