Question

PART A

 

Use the following Graphical to answer questions.

 

 

a.      Refer to the above diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, what should it?

b.     Description Where there is asymmetric information between buyers and sellers!

Answer 1

The amount desired for a commodity is determined by the price of that commodity as well as numerous other factors, including the prices of other commodities, consumer income and tastes, and seasonal impacts. Price-quantity combinations can be shown on a curve called a demand curve, with the price on the vertical axis and quantity on the horizontal axis. A demand curve is usually always downward sloping, demonstrating consumers' willingness to buy more of the commodity at lower prices.

 

The amount of a commodity supplied in the market is determined not just by the price of the commodity, but also by possibly many other factors, such as the prices of replacement products, production technology, the availability and cost of labor, and other production factors. These price-quantity combinations can be shown on a curve called a supply curve, with a price on the vertical axis and quantity on the horizontal axis. A supply curve is typically upward-sloping, showing producers' willingness to sell more of the product they produce in a higher-priced market.

a. 1. A regional/city spatial planning policy is a form of government intervention to minimize negative externalities due to excessive use of urban space. Where if the spatial planning policy is adhered to, it can minimize negative externalities such as floods, congestion, etc.

 

2. Regulation is an action to control people's behavior with rules, where the government can make rules on which ones are allowed to be done and which ones are not.

 

3. Pigouvian taxes are consumers or companies that cause externalities to have to pay taxes equal to the marginal impact of the externalities created, so that it can make consumers or companies able to calculate how many benefits and impacts of the number of goods produced or consumed by companies or consumers.

 

4. Subsidies are steps taken by the government when social benefits exceed personal benefits so that subsidies will be given to consumers or producers. Subsidies lead to a decrease in commodity prices.

 

b.  Unbalanced information or asymmetric information is a situation where one party has information or knowledge that is different or superior to and or with other parties in economic activity. An example is in the world of commerce where the seller certainly has more information than the buyer. The existence of asymmetric information may make parties with superior information or knowledge in economic activities commit fraudulent acts. Like a trader who hides information about his merchandise from buyers, he says the goods are still very new, when in fact the quality has decreased because the goods have been issued yesterday.