ECO201 - 4-2 Simulation checkpoint assignment PDF

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Simulation check point assignment (half of the final project!)...

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John Jeffreys ECO 201: Module Four Simulation Checkpoint Assignment 5/24/2021 EXTERNALITIES WITHOUT POLICY INTERVENTIONS

EXTERNALITIES WITH POLICY INTERVENTIONS

Government Tools: Discuss tools available to the government to correct a market failure. Provide examples from the textbook. The government serves as a buffer between the market and the customers, ensuring that there are standards, balance, and justice in place before the individual and the economy. The government employs a variety of techniques to address market failure. Market failure can be defined as inefficient allocation of resources in a free market (Pettinger, 2019). Some examples of these government tools would be: (1)Command and control policies: This is an externality act of prohibiting particular

activities, behaviors or actions. For example, cutting down trees in certain regions is prohibited. (2) Tradable Pollution Permits: This is the act of granting a permission to a company to

use or produce a specific amount of pollution. For example, a specific permit would allow a business to emit a set quantity of pollutants without incurring any penalties. (3) Corrective taxes and subsidies: The government employs this instrument by taxing

negative externality activities and supporting positive externality activities. For example, the government utilizes various taxes and subsidies approaches such as charging a corporation a fee for generating (or exceeding) a specific amount of waste or rewarding a corporation for decreasing the total volume of waste they generate. (4) Price Maximum and Minimum: The government sets a maximum price (ceiling) or a minimum price (floor). For example, many cities impose rent control, which establishes a ceiling (highest allowable) price on the rent amount that a landlord can charge their tenant. An example of a price floor is minimum wage. The minimum wage is the lowest salary that businesses are legally permitted to pay their employees or it can be viewed as a price floor for the employee, as they must accept no less than this wage for their labor. Supply and Demand Equilibrium: Describe how government intervention affects the supply and demand equilibrium. Refer to the simulation game to explain your responses. By imposing price ceilings and/or floors, the government can influence the supply and demand balance. They also have an impact on this through levying taxes on goods and services. The higher the amount of taxes to pay, the higher the sale price of the product will be, which can affect total sales and profit. Although taxes can be distributed between both the consumer and the seller, a higher percentage of taxes typically results in a smaller amount the seller will actually receive. During my simulations, I discovered it was applying a nuisance fee, which is a type of tax that the government can levy. This price was deducted from the total amount of the sale. Because of the nuisance fee, I was much more conscious of how much I charged for the robotic dogs. Keeping this fee in mind, I tried my hardest to ensure that I still made a profit. I did unfortunately get so caught up in watching the bids during my first simulation I ran out of time before I could hit the “accept highest bid”.

Consumer or Producer Surplus: Specify which government interventions cause a consumer or producer surplus. Explain how they impact consumer or produce surplus. Provide examples from the textbook.

by the government. The producer surplus is defined as the amount a seller is paid for a good minus the seller's cost of providing it (Mankiw, 2021).To keep the price points at a certain level, the government uses price ceilings and floors. A price ceiling establishes the highest price that can be charged for the good. A price floor is the lowest price that can be set for the item. Having a price ceiling and price floor helps to establish the price equilibrium. As the equilibrium price increases, the potential producer surplus increases; as the equilibrium price decreases, producer surplus decreases. Our textbook presents us with the example of painters where the one who wins the bid is Andy. Since Andy was willing to do the job for $500 but they paid him $600, thus resulting in a surplus of $100. The consumer surplus is defined as the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it (Mankiw, 2021). When the price of a commodity declines, consumer surplus grows. Whereas when the price of a good rises, consumer surplus declines.

Reference Mankiw, N. G. (2021). Principles of microeconomics (#9 edition). Cengage. Pettinger, T. (2020, January 20). Market Failure. Retrieved May 24, 2021, from https://www.economicshelp.org/micro-economic-essays/marketfailure/...