6. Common resources and the tragedy of the commons

Larry, Raphael, and Alex are fishermen who live next to a lake that is open to fishing; in other words, anyone is free to use the lake for fishing. Assume that these men are the only three fishermen who fish in this lake and that the lake is large enough for all three fishermen to fish intensively at the same time.

Each year, the fishermen choose independently how many fish to catch; specifically, they choose whether to fish intensively (that is, to place several fishing lines in the water for long periods of time, which hurts the sustainability of the lake if enough people do it) or to fish nonintensively (which does not hurt the sustainability of the lake). None of them has the ability to control how much the others fish, and each fisherman cares only about his own profitability and not about the state of the lake.

Assume that as long as no more than one fisherman fishes intensively, there are enough fish to restock the lake. However, if two or more fish intensively, the lake will become useless in the future. Of course, fishing intensively earns a fisherman more money and greater profit because he can sell more fish.

The lake is an example of   because the fish in the lake are   and   .

Depending on whether Raphael and Alex both choose to fish either nonintensively or intensively, fill in Larry's profit-maximizing response in the following table, given Raphael and Alex's actions.

	Raphael and Alex's Actions
	Fish Nonintensively	Fish Intensively
Larry's Profit-Maximizing Response

Which of the following solutions could ensure that the lake is sustainable in the long run, assuming that the regulation is enforceable? Check all that apply.

Outlaw intensive fishing.

Develop a program that entices more fishermen to move to the area.

Convert the lake to private property, and allow the owner to sell fishing rights.

Why does the definition of a pure public good imply that its benefits are not subject to congestion?

The City of San Antonio is considering various options for providing water in its 50year plan, including desalting. One brackish aquifer is expected to yield desalted water that will generate revenue of $4.1 million per year for the first 4 years, after which less production will decrease revenue by 10% per year each year. If the aquifer will be totally depleted in 23 years, what is the present worth of the desalting option revenue at an interest rate of 8% per year?

Play the game " the fiscal ship"

1) List two of your main goals in "The Fiscal Ship" and why they are important to you.

2) What are the two largest or most important policy changes that you made in “The Fiscal Ship”? How did these affect the budget?

CAn you help me with reduce inequality and invest to the future

Fill in the blanks.

Players,(....) , and payoffs are the defining characteristics of a game. At the Nash equilibrium of a game, everyone is playing a (....) .

A firms long-run supply curve is the portion of the [... ] cost that is above the marginal cost curve. The long-run competitive market equilibrium price must be such that all firms earn zero profit because [ ... ] .

If [.......] is greater than marginal cost the firm can increase profits by producing more output.

The following is an example of a source of monopoly power: [ ......] . The monopoly market output is inefficient due to [...] .

Amusement parks generally charge a lower price for admissions for children; this is an example of [.. ] price discrimination. If the amusement park could charge every individual their exact willingness to pay then this would be [ ...... ] price discrimination.

Describe an example of a real-world industry or market that would be considered by economists to be a natural monopoly.

1. What characteristics of the industry make it a monopoly?
2. What is the impact of the monopoly power on its customers?
3. Why might government want to regulate natural monopolies?
4. How might such regulation be structured?

State and prove Walras' law.

Consider the new Starbucks in Bethlehem. Suppose the wage is w = $9, and the cost of capital is r = $1, and their production function for cups of coffee is q = 4K^0.5L^0.5

a) What is the least/minimum cost of inputs combination required to produce 120 cups of coffee?

b) What would be the total cost of producing 120 cups of coffee?

c) Suppose instead that capital was fixed at 25 units. What would be the implications for labor usage maintaining q = 120?

d) Keeping capital fixed at 25 units. What would be the implications for total cost maintaining q = 120?

To address the Covid Virus situation, government has implemented restrictions that have

prevented many from working. Modeling this as a decrease in the labor supply, present an

analysis (using the IS-LM curves, AS-AD diagram, and labor market diagram) to show the

impacts we should expect from the Classical perspective. (That is, assume the nominal wage

adjusts to provide full employment.) For results, show in your analysis the restrictions are

predicted to impact the employment level, nominal wage level, real wage level, output level, price

level, and real interest rate level.

China was an original signatory to GATT, but after the communist revolution the Nation Government of China retreated to Taiwan as the Communist Party of China took over the mainland to from the People's Republic of China. Approximately a year later, the National Government decided to withdraw From GATT to prevent the communist government from enjoying the benefits as a GATT party. The PRC did not attempt to keep its Status.

   Decades after its establishment, the PRC attempted to rejoin the International trading Body, and then its successor, the WTO. What benefits did China expect to derive from re-engaging with the organization? What benefits did the existing members anticipate. Where their respective expectations met in your opinion? Please explain.

Consider the determination of real exchange rates in a large open economy with a flexible exchange rate regime. If today’s technology increase, e* will (increase/decrease/stay/none). If tomorrow’s technology is expected to improve, e* will (increase/decrease/stay/none) . If M decreases, e* will (increase/decrease/stay/none). If the government decreases G1 while keeps G2 unchanged, e* will (increase/decrease/stay/none),

1.Capital investment, labor force and its productivity, and technology are three key elements that determine the total output of an economy. True or False

2.In the long run, when capital is abundant, the marginal benefit of capital investment is decreasing, so technological changes are more important in supporting economic growth. True or False

3.GDP calculates the total market values of newly produced final goods and services to represent the size of the economy. True or False The labor force participation rate shows what percentage of the working-age population is in the labor market. True or False

4.The unemployment rate indicates what percentage of the labor force in the labor market is currently unemployed. True or False

5.When a country opens its economy to the rest of the world, if the original domestic price is lower than the global price, an export will incur, which drives up the domestic price to the global level. True or False

6.When a country opens its economy, if the original domestic price is higher than the global price, imports will incur which drives the domestic price to move lower to the global price.True or False

7.When the domestic price of a good is higher than the global price of the same good, what happens in the context of an open economy? A. It will increase domestic sales and also the domestic price. B. It will attract domestic sellers to sell to the international market. The additional sales drive the domestic price even higher. C. The domestic sales and price will both go down. D. It will attract international sellers, which will lead to import.

8.The additional supply will lower the domestic price to the same level as the global price. A foreign exchange system that allows the exchange market to determine exchange rates but with restrictions on daily trade volume and exchange rate movement is called: A. free floating system. B. pegging system. C. managed floating system. D. fixed system.

9.A local gas station shows that the price of regular unleaded is $4.19 a gallon. What is the function of money here? A. medium of exchange B. store of value C. unit of account D. standard of deferred payment

10.According to the quantity theory of money, which of the following statements is NOT true? A. Else the same, the higher the velocity of circulation, the less money needed for the same amount of transactions. B. Else the same, inflation will lead to larger quantity of money needed for an economy. C. Else the same, the higher the price level, the lower the demand for money. D. Else the same, a larger real GDP generally requires more money in circulation.

11.If a country has tax revenues of $7 trillion and government expenditures of $7 trillion, its government has a(n): A. unknown situation. B. budget surplus. C. budget deficit. D. balanced budget.

12.In recent months, the exchange rate between the Chinese Yuan and the U.S. dollar moved from 6.1 Yuan/USD to 6.3 Yuan/USD. Which currency depreciated? A. Neither B. Both C. Dollar D. Yuan Katy sets up a savings account to manage money for her child's education.

13.What is the function of money here? A. standard of deferred payment. B. medium of exchange. C. store of value. D. unit of account. Micheal, a recent Shepherd graduate, financed his studies with a student loan.

14.Now he works as a trainer and makes monthly payments to the loan. What is the function of money here? A. medium of exchange B. unit of account C. standard of deferred payment D. store of value Most economic policies are a two-edge sword.

15.The overuse of a policy may cause significant side effects. The side effects of an expansionary fiscal policy include: A. government budget deficit. B. potential inflation. C. that the government may have too much influence on the market economy, and its efficiency is always of question. D. all of the above.

16.One year ago, the federal discount rate (a key interest rate) was 2.5%, and the current federal discount rate is 0.5%. Such adjustment aims to: A. decrease the monetary base. B. increase the cost for firms to borrow from the Fed. C. balance federal budget. D. encourage lending.

17.The Short-Run Phillips Curve shows: A. that monetary policy has an inverse effect on the unemployment rate and the inflation rate. B. monetary policy is effective in moving the real economy in the short run since it can affect the unemployment rate. C. There is a negative relationship between the inflation rate and the unemployment rate in the short run. D. all of the above.

18.The government expenditure multiplier refers to: A. that government spending has little impact on national economy. B. that each additional dollar spent by the government will lead to a less than one dollar increase in GDP. C. that government spending leads to less consumer spending. D. that government spending has a magnified effect on national economy.

19.To serve as a commodity money, an object must satisfy which of the following requirements? A. It has to be a commodity or token, which can be divided into small parts. B. It has to be generally accepted by the market participants to trade for goods and services. C. It has to be used as a method of settling a debt or payment. D. all of the above.

20.To serve as a commodity money, an object must satisfy which of the following requirements? A. It has to be a commodity or token, which can be divided up into small parts. B. It has to be generally accepted by the market participants to trade for anything and everything. C. It has to be used as a method of settling a debt or payment. D. All of the above.

21.Tom bought 6 oranges for 3 dollars. Money serves the function of: A. standard of deferred payment. B. store of value. C. medium of exchange. D. unit of account. What is (are) the main objective(s) of fiscal policy: A. higher economic growth. B. full employment. C. low inflation. D. all of the above.

22.Which branch of the Fed oversees most financial institutions in West Virginia? A. Richmond B. Cleveland C. Washington DC D. Philadelphia

23.Which of the following items is NOT a form of money? A. Traveler's checks B. Coins C. Treasury bonds D. Cash Which of the following statements about the balance of payments in an open economy is correct? A. It includes current accounts, financial accounts and capital accounts. B. It is always in balance. C. A deficit of current accounts (i.e., trade deficit) is always balanced by a surplus in financial accounts (i.e., net investments in domestic assets). D. all of the above.

24.Which of the following statements is INCORRECT about M1 and M2? A. M2 includes M1, savings deposits, time deposits and money market funds. B. M1 and M2 are mutually exclusive. C. M2 is more broadly defined than M1. D. M1 is more liquid than M2.

25.Which of the following statements is NOT true? A. An increase in government spending directly increases the aggregate demand for goods and services. B. Lower taxes reduces business costs and increases aggregate supply. C. Although government spending may have a crowding-out effect on private investment and spending in the same field, the positive impact on the overall economy is greater. D. all of the above are true.

Is it better for a company to produce only one product? Or is it better for a company to produce several products? Put differently, is diversification better than specialization, or is specialization better than diversification? Please explain why you feel this way.

Comparative Advantage Models

Suppose two products are being produced in the US, auto and wheat. Labor is the mobile factor used in both productions. Capital and Land are two specific factors.

1) Draw the butterfly graph four all four markets (product market, productions, and labor market) and clearly label all four axes.

2) Explain why the PPF is curved in the Specific Factors model.

3) Will the PPF curve be a straight line for HO model?