...sk 3: Efficiency and Market Failure: 1. The marginal cost for Java Joe's to produce its first cup of coffee is $0.75. Its marginal cost to produce its second cup of coffee is $1.25. Its marginal cost increases by $0.50 for each additional cup of coffee it produces. Suppose the market price for coffee is $2.25. Construct a graph showing the producer surplus for each cup of coffee Java Joe's will sell. How many cups of coffee will Java Joe's sell? What is the value of the producer surplus Java Joe's receives for each cup of coffee it sells? Java Joes will sell 3 coffees before it becomes a market price. Therefore the calculated producer surplus would be the area under 4 cups sold. Therefore (2.25-0.75)/2 * 3 = 4.5 2. According to Graph: At Equilibrium At price of $5...
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...off as your own work. AS Micro Essays 1.Evaluate the case for and against governments intervening to try to stabilise the price of copper, for example, through setting up a buffer stock scheme. 2.Evaluate advantages and disadvantages of various methods of government intervention to correct market failure arising from aircraft emissions. 3. Discuss the likely effects on the retail market for coffee if there is a large increase in city centre rents. 4.In the UK, students face increasing tuition fees. Discuss the benefits and costs to society of abolishing all tuition fees. 5.Discuss three policies to reduce the level of cigarette smoking amongst under 21s. 6.Discuss the extent to which governments should subsidise companies who are developing cars which run on clean fuels such as hydrogen? 7.Discuss whether the government is mistaken to worry about monopoly power? 8.Discuss the advantages and disadvantages of the government intervening in agricultural markets? 9.Discuss the effects on UK business of a rise in fuel prices. 10. Discuss whether the government should end free health care for people and make them take out private health care insurance like in the US? 11. Discuss the role that pollution permits could play in reducing global warming 12. Discuss the case for implementing a congestion charge for driving into Birmingham city centre. 13. Discuss the micro...
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...URAN SPRAWL: DIAGNOSIS AND REMEDIES Throughout this article, the main focus is urban sprawl and the non-endearing remedies to fix this growing concern. Three influential forces are the end results of urban sprawl: a growing population, rising incomes, and falling commuting costs. Although these sound positive to societies well being, market failures are distorting their positive social desirability. The allocation of agricultural land converted to urban usage has justified the criticism of urban sprawl by not accounting for the benefits of open space, social costs of road congestion, and developers failing to pay for the infrastructure costs generated. The remedies projected for these market failures in hope of alleviating the spatial size of the city are developmental taxes and congestion tolls (1). Critics raise a few questions about urban sprawl and the possible remedies policy makers could enact. But, are they are justifiable? The first one is, is urban sprawl truly a growing problem affecting American society? Throughout the article, Brueckner states both views on urban sprawl: The criticism against it and how to prevent it, and the benefits of urban sprawl to American society. Another question addressed is, is urban sprawl contributing to the decay of downtown areas? With the growth of urban development, the incentive to rebuild land and housing closer to the city center is reduced. This is because developers can purchase large amounts of farmland further away from...
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...GOAL: To alleviate traffic congestion in GTA and especially on the east-west route cost effectively and in as short a time as possible. INTERVENTION: To establish and privatize a new east-west route (407) to ease the congestion on the main route (401). The new privatized highway is intended to reduce traffic, therefore reducing the amount of time spent commuting, hence encouraging investors and stimulating the economy through productive time gained. ANALYSIS: This is a DIRECT intervention. The government is directly involved at A in supporting the decision to privatize the highway (407) to improve traffic flow and efficiency. At B: (i) the goal of reduce traffic congestion in the GTA is satisfied since another east-west route is introduced to relieve the pressure on the existing one (401). (ii) the intended goal is achieved by the government’s decision to lay the burden of developing, designing, building operating and maintaining of the new highway on the private sector. (iii) a new state of equilibrium is established because the change in government policies that allow for privatization enabled the government to share the financial burden with the private sector, resulting in quicker and more cost efficient building of highway 407. This curbed the traffic congestion problem faster and more efficiently than if the government was the only player. This intervention is COERCIVE because when the government...
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...Environmental Market Failure Negative Externalities Costs imposed on a 3rd party not involved with the consumption or production of the good (the external cost) Divergence between private and social cost MSC=MPC+MEC The MEC = the negative externality The free market price is less than the optimum price leading to over consumption Welfare loss Q: The market generated quantity (where privates crosses private) Q1: The optimum quantity (where social crosses social) Over consumption of Q-Q1 Unequal Distribution Effects Citizens in poor countries are more likely to be affected by the consequences of global warming that those in rich countries E.g. drought/flooding They are also a lot less likely to have consumed the goods and services which caused the global warming And a loss less able to protect them selves e.g. through insurance policies There are inequities between those who contribute to global warming and those who suffer from it Citizens of developed (polluting) countries pay less for their goods and services than the social costs of their production MSC=MPC+MEC Government Intervention to correct Environmental Market Failure 2 main types: Market based measures Designed to modify the price mechanism using strategies such as taxes and subsidies Government regulation Sometimes referred to as “Command and Control”, designed to create incentives for firms to reduce harmful...
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...to our destination place within hours. You must go out from your house before two or three hours to reach destination which is only 20 or 30 minutes required. Who is responsible for this? Traffic jam is that magician. Traffic jam has become a great monster in our modern life. Traffic congestion is not only affecting our business but the education sector as well. Students cannot do other tasks such as photocopying or collecting notes before attending class in the morning because a lot of time gets wasted on traffic congestions. It wastes lot of working hours of students as well as teachers. In many occasions, students and teachers fail to attend classes in due time. And it is more painful when students fail to reach exam halls and fails just due to a social problem. Now just think everyday how much national time is wasting, how much economical activities are losing, for the traffic congestion problem. This assignment is focusing current situation of traffic congestion problem in Dhaka city. What is Traffic jam? A traffic jam is a long line of vehicles that cannot move forward because there is too much traffic, or because the road is blocked by something. Over the last few years the traffic congestion problem of Dhaka City has visibly been deteriorating steadily. Limited resources, invested for the development of transport facilities, such as infrastructure and vehicles, coupled with the rapid rise in transport demand, existence of old transport and also huge number of non-motorized...
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...Autonomous vehicles could transform the way we move. The work that is done now has the opportunity to drive a transformation in the relationship between humans and machines. However, before we jump into using the technology, we need to evaluate whether we are willing to give up control to our cars and whether it is ethical to release technology that could cause harm to innocent people. Autonomous cars offer many benefits, including removing human error from driving, increasing the mobility of people, and decreasing congestion in roadways. While autonomous cars may eventually be safer than self-driving ones, they will never be able to completely avoid accidents-- and when they fail, it could be catastrophic. In cars that have no fallback option...
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...his/her company's products and services are made and distributed. While I have enough schooling to fill two lifetimes, I also believe that you don't need an advanced degree to be a master of economics. You just need the ability to observe your surroundings, the intellect to make logical deductions and confidence to follow where that logic takes you. I firmly believe that if more economic theory was put into practice, we would not have seen such a drastic collapse in the real estate market. When home prices exceed affordability, fewer can be purchased and prices will retreat. If a large number of those homes are financed with little money down or negative amortization loans, expect debt to exceed the value. If debt exceeds the value, expect loan defaults. Many people understood these concepts but ignored the signs. It takes managers with a desire to observe economics in everyday life, the ability to quantify those observations into business decisions and the confidence to follow through that can make a company incredibly successful. On a more serious note. The importance of business economics includes the following: 1. Dealing with a shortage of Raw Materials. Economics provides a mechanism for looking at possible consequences as we run short of raw materials such as gas and oil. 2. How to distribute resources in society. To what extent should we redistribute income in society? Is inequality necessary to create economic incentives or does inequality creating more...
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...Invisible hand, Market failure and Government intervention Invisible Hand Invisible Hand, term used in the book “The Wealth of Nations”, by classical economist Adam Smith, to characterize the idea that a guiding force leads individuals seeking their own economic self-interest to act in ways that also benefit society. A vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in them. Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market-clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics. The efficient outcome will have been brought about through parsimony in the use of information; the only things that individuals, in making their supply/demand decisions, need to know are the prices of the different commodities. Furthermore, since the efficient outcome...
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...services for which no appropriate compensation is paid. Externalities can cause market failure if the price mechanism does not take into account the fullsocial costs and social benefits of production and consumption. The study of externalities by economists has become extensive in recent years - not least because of concerns about the link between the economy and the environment. PRIVATE AND SOCIAL COSTS Externalities create a divergence between the private and social costs of production. Social cost includes all the costs of production of the output of a particular good or service. We include the third party (external) costs arising, for example, from pollution of the atmosphere. SOCIAL COST = PRIVATE COST + EXTERNALITY For example: - a chemical factory emits wastage as a by-product into nearby rivers and into the atmosphere. This creates negative externalities which impose higher social costs on other firms and consumers. e.g. clean up costs and health costs. Another example of higher social costs comes from the problems caused by traffic congestion in towns, cities and on major roads and motor ways. It is important to note though that the manufacture, purchase and use of private cars can also generate external benefits to society. This why cost-benefit analysis can be useful in measuring and putting some monetary value on both the social costs and benefits of production. MARKET FAILURE AND EXTERNALITIES When negative production externalities exist, marginal social...
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...Marginal Cost Based Pricing in Transport Key Implementation Issues from the Economic Perspective Erik Verhoef, Free University Amsterdam Paper prepared for IMPRINT 1. Introduction Marginal cost pricing in transport is a ‘hot’ topic, in at least two senses. First, as is well known, over the last decade(s), sophisticated pricing policies in transport have evolved from a primarily academic, theoretical construct, to a realistic and seriously considered option for many areas – urban and non-urban – around the world. This is due to (at least) two simultaneous, interacting developments, viz. the steady growth in transport related problems such as congestion and emissions on the one hand, and the development of technologies enabling automated charging on the other. So, marginal cost pricing in transport is ‘hot’ in the sense that many governments, at different spatial levels, seriously explore the possibilities for implementing some form of pricing policies aimed at the containment of transport-induced externalities. At the same time, such proposals are rarely met by great public enthusiasm, making it a ‘hot’ topic from the political viewpoint in that policy makers might easily burn their hands when proposing to drastic pricing reforms in transport. A very common result is that proposals for pricing schemes often end up in the proverbial wastebasket long before a first penny was to be actually charged. Apparently, the implementation of marginal cost based pricing in transport is...
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...AS Economics Answers 4 Government intervention in markets 1 Remedies for market failure Activity 1, page 163 a It has declined. The state now owns less of the country’s housing stock. b That the state thinks there is less market failure in the housing market now than in 1979. use. Figure 1 shows that drivers do not initially pay for the negative externalities (external costs) they generate. A tax equivalent to the marginal external cost would push price up to PX. Road use would be reduced from Q to QX, the socially optimum level. In practice, it is difficult to estimate external costs. d Congestion and other negative externalities caused by car use will increase. Road use by cars is likely to continue to increase in the absence of government action because: the price of road use does not reflect its true costs; road use is income inelastic – as incomes rise, people use their cars more and more families have cars; increasing economic activity and geographical mobility mean there are likely to be more cars on the road. Activity 2, page 163 a The action suggests that pre-2003 car use was above the socially optimum level. This is because the Mayor’s action was designed to reduce car use. b Two other policies which could be used are to increase the cost of parking and to increase cycle and bus lanes in central London. Figure 1 MSB MSC MPC costs/benefits Activity 3, page 164 a The government does not provide IVF treatment in every region because of lack of resources. b NHS...
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...Market Failure An Economic Analysis of its Causes and Consequences Vani K. Borooah * Professor of Applied Economics University of Ulster February 2003 * School of Economics and Politics, University of Ulster, Newtownabbey BT37 0QB, Northern Ireland (VK.Borooah@ulst.ac.uk). I am grateful to the Department of Finance and Personnel (Northern Ireland) for supporting this work though, needless to add, I alone am responsible for the contents of this paper and, indeed, for any of its deficiencies. 1. Introduction Much of economic theory of the textbook variety is a celebration of the free market system. This celebration has two parts. First, the operation of the price system, in the context of competitive markets, leads to balance between the demand and supply of the different goods and services traded. In other words, flexible prices result in competitive markets clearing. Second, the market- clearing equilibrium - brought about through flexible prices and competitive markets - is a "good thing" in the sense that it is also a point of economic efficiency1. In other words competitive outcomes are also efficient ones. The fact that competition leads to efficiency is known as the First Fundamental Theorem of Welfare Economics2. These results - which are, of course, a vindication of Adam Smith's intuition about the existence of an "invisible hand" bringing consistency and order to the chaos of individual actions - would be remarkable in themselves. But there is more. The efficient...
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...AS Economics Answers 4 Government intervention in markets 1 Remedies for market failure Activity 1, page 163 a It has declined. The state now owns less of the country’s housing stock. b That the state thinks there is less market failure in the housing market now than in 1979. use. Figure 1 shows that drivers do not initially pay for the negative externalities (external costs) they generate. A tax equivalent to the marginal external cost would push price up to PX. Road use would be reduced from Q to QX, the socially optimum level. In practice, it is difficult to estimate external costs. d Congestion and other negative externalities caused by car use will increase. Road use by cars is likely to continue to increase in the absence of government action because: the price of road use does not reflect its true costs; road use is income inelastic – as incomes rise, people use their cars more and more families have cars; increasing economic activity and geographical mobility mean there are likely to be more cars on the road. Activity 2, page 163 a The action suggests that pre-2003 car use was above the socially optimum level. This is because the Mayor’s action was designed to reduce car use. b Two other policies which could be used are to increase the cost of parking and to increase cycle and bus lanes in central London. Figure 1 MSB MSC MPC costs/benefits Activity 3, page 164 a The government does not provide IVF treatment in every region because of lack of resources. b NHS IVF treatment...
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...* CONTENTS PAGE no. 1. Dynamic Economy 1-2 2.1. Strategies for further development 2. Integrated Transportation system 3-5 3.2. Failures 3.3. Strategies 3. Green city: Environmental Sustainability 5-6 4.4. Failures 4.5. Strategies 4. Distinctive Singapore Identity 7 5.6. Failures 5.7. Strategies 5. Online references 8 * Land Use Plan 2030 Singapore and A New Vision To it Creating Dynamic Economy * Creating a dynamic economy which will generate good jobs, opportunities and resources so as to invest in the city and the people thus help them achieve their aspirations. As poor growth also affect the people who are less educated and the employment. * Looking at the demographic profile it is seen that Singaporeans are becoming better educated with 70% of citizens aged 25-29 have diploma qualifications and above. By 2030 the expected rise in PMET jobs will be nearly 50% to about 1.25 million compared to 850,000 today while the other non-PMET jobs are expected to fall by 20% to about 650,000 compared to 850,000 today. By 2030, two-third jobs will be held by Singaporeans compared to about half today. * To create this number of good jobs it is needed to i. remain competitive to tap Asia’s growth, ii. make a strong Singaporean workforce, iii. Complement the Singaporean core with the foreign workforce. * Creating more commercial and...
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