Question

1. For this question: A. Define the ‘economic problem’ and explain how tradition (not markets or command) works to solve it. B. Explain why utilizing tradition to solve distribution implies a high level of trust and fairness and hence why reciprocity has limits in certain societies. C. Explore how and why tradition still plays a vital role in our economic solution given that we rely primarily upon the market and command to solve the economic problem in the USA.

Answer 1

A.Unlimited want of human to use limited available resources led to issue of proper allocation and distribution of scarce resource. For example, over fishing from arctic circle led to conflict among nations. As MARGINAL PRIVATE BENEFIT IS NOT EQUAL TO MARGINAL SOCIAL BENEFIT .This result into overexpliotation of resources and led to Tradegy of commons.

Economic problem includes market failure , externalities , recessions. Another example is environnmental pollution .

Although tradition concept in order to solve economic problem is not naive but need to revive.  

1. By property right system . It include by defining ownership otherwise led to TRAGEDY O COMMONS. i

2. Common pool resources .Can be natural or human made. Non excludable but rival . It typically consist of core resources (water or fishes) which is limited in extraction.

3. Clearly defined boudaries

4. Tradable environmental allowances which can be tradable .For example CARBON TAX. CARBON CREDIT

B. Utlising tradition needs high level of trust in order to have safeguard from.

1. Asymetric information to some owners under collective ownership . It will led more benefit to some and other may left with few resources.

2. Issue of Free riders