Question

 

Part A

Answer ALL Key Terms below. Meaning / definition and examples and / graphs wherever necessary.

1) Production possibilities 2) Opportunity cost 3) Economic growth 4) Public goods versus private goods 5) Cost-benefit analysis 6) Inelastic demand versus Elastic demand 7) Externality 8) Performance standards versus Design Standards 9) Marketable pollution permits 10) Minimum wage

Part B

Answer the following questions at least in 150 words. Please include graphs and / examples wherever necessary.

1- Discuss the reasons behind higher incarceration rates in US. What does the empirical evidence suggest about the trends in violent crimes since 1990s in USA?

2- How could taxes be used to regulate legal drug markets? How are excise taxes on drugs similar to excise taxes on cigarettes? Why are excise taxes on cigarettes and alcohol sometimes called “sin taxes”? Do we tax them solely because they are “sins”?

3- How could taxes be used to regulate legal drug markets? How are excise taxes on drugs similar to excise taxes on cigarettes? Why are excise taxes on cigarettes and alcohol sometimes called “sin taxes”? Do we tax them solely because they are “sins”?

4- Discuss the progress and failures of some of the global policies on environment.

Answer 1

Part A

1- Production Possibility - Production possibilities shows different possible combinations of two goods which can be produced with the available resources which is represented by a curve. The construction of PPC is based on these assumptions: (i) resources are given, (ii) given resources are fully & efficiently utilised, and (iii) technology ( technique of production) remains constant.

2- Opportunity cost - Opportunity cost is the cost availing one opportunity ( opportunity 2) in terms of the loss of other opportunity ( opportunity 1). In other words, it is the cost of shifting resources from one use ( one opportunity) to the other ( other opportunity) . It is equal to the loss of output in use 1 when resources are shifted from use 1 to use 2 .

3 - Economic growth -

• Economic growth is an increase in the production of goods and services in an economy.
• Increases in capital goods, labor force, technology, and human capital can all contribute to economic growth.
• Economic growth is commonly measured in terms of the increase in aggregated market value of additional goods and services produced, using estimates such as GDP.

4 - Public goods vs private goods -

1. Public goods are for the facility and welfare of the public in general for free of cost. Whereas, private products are the ones which are sold by private companies to earn profits and fulfil the needs of the buyers.
2. When nature or the government provides public goods, private goods are produced by the businessmen or the entrepreneurs.
3. The demand curve for public goods is horizontal, whereas the demand curve for private products is vertical.
4. The various examples of public goods are police service, fire brigade, national defence, public transport, roads, dams and river. On the contrary, clothes, cosmetics, footwear, cars, electronic products and food are examples of private

6 - Elastic demand vs inelastic demand -

Demand for a commodity is often categorised as elastic or inelastic. Demand for a commodity os elastic if Ed greater than 1 ( elasticity of demand is greater than unity) . Implying that percentage change in quantity demanded is greater than percentage change in price of a commodity. Demand is inelastic if Ed is less than 1 ( elasticity of demand is less than unity). Implying that percentage change in quantity demanded is less than the percentage change in price of the commodity.