Microproject Analysis - Essay Example

Micro Project Table of Contents Question 3 Question 2 4 Question 3 6 Question 4 7 Question 5 8 References 9 Question Governments can response to the externalities by various ways. They can response through the corrective taxes and subsidies. The activities those have negative externalities can be internalized through taxing by the governments. Likewise, the activities those have positive externalities can be subsidized. Another way of response can be through the use of pollution permits. Thus, the buyer of the permit will get the right to pollute to a certain extent. Even control measures can be taken for the negative externalities. All these options are good but the best way is the corrective tax as it can reduce the tendency of the activities that have negative externalities (Mankiw, 2008). Apart from these provisions, other measures that government can take are carbon emissions trading and carbon allowances for consumers (Tutor 2 U, n.d.). Example of the good that has positive externnility is the education service. The benefit it has provided to the users has more social benefits than the private benefits. Private benefits in this case will be the advantages that an individual user gets whereas public benefit is what the society gain due to increasing rate of literacy and overall growth. Example of de-merit goods, which posses negative externality can be alcohol or cigarettes. These kinds of products reduce the ‘social marginal benefit of consumption’ and government usually taxed those products (Tutor 2 U, n.d.). Question 2 2. A. If Bart can charge only one price then he should charge $7 as only this way he can sale the maximum meal and can earn maximum revenue. Charging more than it would lead to loosing of one meal. The combination of charges and revenues can be presented with the help of one table. Charges of one meal Revenue earned Number of Meal $7 $21 3 $8 $16 2 $9 to $15 $15 1 It has been mentioned that marginal cost of providing a meal is constant at $5. Therefore, producer’s surplus will be $2 ($7 - $5). Consumer surplus will be different for all the customers. Consumer surplus for Bob, Sue and Katie will be $0, $1 and $8 respectively. 2. B. Price discrimination is not possible in such case. For price discrimination, it is necessary to know the type of customer and also the amount of money. Only then, the shopkeeper can charge different price to the different customer. In that case, Bart will charge $7 from the group or from all of them. It is because, Bart knows that one of them has $7 and if he will charge more than that then he would loose one meal. Charging $7, he is able to earn revenue of $21 and that is the maximum revenue he can earn. 2. C. Being perfectly price discriminate, Bart should charge three different prices from three of them. For Bob, price should be $7 as it is the highest amount he can pay. Thus, Bart can gain $2 and he would not have to loose even a single meal. Sue will be charged $8 as he can pay that and Katie can be charged maximum $10 as more than that amount can compel Katie to come with only few dollars from next time intentionally. 2. D. Equilibrium price in monopoly market is fixed at the price in which both the buyer and supplier of the products agree to buy and supply the same quantity of goods respectively. In this case, total available amount that the three friends have is $30. The maximum equilibrium price will be $10 as they need minimum three meals. One constraint is there, the group will try to save amount for playing video game also. Therefore, $10 can not be the equilibrium price. As the fees charged for video game is not given therefore it is difficult to calculate the equilibrium price but it can be $8 or $9 as in both the case the group will get three meals and they will have few amount left and Bart will also able to maximize his revenue. 2. E. If there would be another restaurant in the town, then chances of price discrimination will be low and three friends will decide upon the place where price is low and at a particular amount maximum meal can be enjoyed. In that case, they may have 3 meals less than $21 or $18 also. The situation will completely change if there are many restaurant as no chances of price discrimination will be possible in that case. Even it can also be possible that due to intense competition marginal cost of producing one meal might be low and they may have their mean at a lower price. 2. F. In case of competitive market, it is true that quality of the meals will be same for all the restaurants and price will also be same. In that case, there will be no chances of price discrimination and a minimum amount will be charged from the three friends therefore they might be having money for playing video games. Question 3 The industry where customized product can be manufactured or in case of few service industries also, price discrimination is possible. For example, in financial service providing, such as portfolio management, different fees may be charge from different clients. Another example is the medical industry, or a particular nursing home, where fees may be charged as per the income of the patient or of his family. Consumer surplus is possible without price discrimination also. Consumer surplus arises when the actual price of a product is less than the expected price for a consumer. Apart from price discrimination, it can be also occur by a sudden price hike by the shopkeeper which would increase it and decrease the consumer surplus respectively. Consumer may pay less through his or her bargaining capacity and by purchasing a huge volume. Basically, it has been seen that consumer do not pay more than the price of a product but they may pay more for services if it is able to satisfy their expectations. Question 4 Product bundling basically indicates the price elasticity of the product. This refers the percentages change in the quantity of product due to the changes of percentage in the price. In this case, price of individual product is changed and therefore the consumer will prefer to buy additional products. Firms are more likely to bundle goods if demand is elastic. Elasticity of demand refers to the changes in the quantity of the product due to the changes in the independent variable of the product. If demand is inelastic, it means there will be no effect in the quantity of the product. Question 5 According to the Director of the U.S. Environmental Protection Agency’s Office of Solid Waste, a well run curbside recycling program may cost $50 to more than $150 per ton where disposal program and trash collection may cost anywhere from $70 to $200 per ton. He further said that recycling can be cost effective as there is room for improvement. But it has been also found that much- lauded recycling program of New York City was losing money. Therefore, they eliminated plastic and glass recycling. As per the view of Mayor Michael Bloomberg, the benefit from recycling of glass and plastic were outweighed by the price. The cost is twice as much as disposal. Here, lies the difference of assumption of the pro-recycler and anti-recycler. Benefits of recycling is also increasing with the time being as New York City has gained experience (Fox, 2010). From another sources it has been revealed that, there are basically two recycling programs. One of that has worked, is paper recycling, 1300 tons in a day. It pays for itself but one that does not pay for itself is the recycling of 1,000 tons per day recycling of plastic, glass and metal. Regarding the benefits of the recycling, it offers less reliance on petroleum for plastics, cutting down fewer trees for paper, stopping the dilapidation of land and ground water from landfills, and expectations of reducing air pollution from ignition (Sanders, 2002). References Fox, T., 2010. Cost of Recycling vs. Trash Collection. Do the Benefits of Recycling Outweigh the Costs?. [Online] Available at: http://environment.about.com/od/recycling/a/benefit_vs_cost.htm [Accessed August 18, 2010]. Mankiw, N. G. Principles of Economics. Cengage Learning, 2008. Sanders, E., 2002. The Value of Recycling. Recycling. [Online] Available at: http://www.gothamgazette.com/iotw/recycling/ [Accessed August 18, 2010]. Tutor 2 U, No Date. Alternatives to Environmental Taxes. Externalities - Government Policy Options. [Online] Available at: http://tutor2u.net/economics/revision-notes/a2-micro-externalities-policy-options.html [Accessed August 18, 2010]. Tutor 2 U, No Date. De-Merit Goods. Subject Menu. [Online] Available at: http://tutor2u.net/economics/content/topics/marketfail/merit_goods.htm [Accessed August 18, 2010]. Read More