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Fundamental Definitions:
Fundamental Definitions:
- Define the term market failure.
market failure- is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net loss of economic value. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that are not efficient– that can be improved upon from the societal point of view
- Define what is an externality and how it relates to market failure.
externality is the cost or benefit that affects a third party who did not choose to incur that cost or benefit. Externalities often occur when the production or consumption of a product or service's private price equilibrium cannot reflect the true costs or benefits of that product or service for society as a whole. This causes the externality competitive equilibrium to not be a Pareto optimality.
Externalities lead to market failure because a product or service's price equilibrium does not accurately reflect the true costs and benefits of that product or service.
- Provide few (at least 3) examples of positive and negative externalities and explain why they are externalities.
NEGATIVE EXTERNALITIES-the externality also increases the aggregate cost to the economy and society making it a negative externality. Externalities are negative when the social costs outweigh the private costs.
Pollution is a well-known negative externality. A corporation may decide to cut costs and increase profits by implementing new operations that are more harmful to the environment.
Air pollution. Air pollution may be caused by factories, which release harmful gases to the atmosphere. ...
Water pollution
Farm animal production
Passive smoking
Traffic congestion.
Noise pollution
POSITIVE EXTERNALATIES-
When you consume education you get a private benefit. But there are also benefits to the rest of society. ...
A farmer who grows apple trees provides a benefit to a beekeeper. ...
If you walk to work, it will reduce congestion and pollution; this will benefit everyone else in the city.
- Consider some of the issues related to Covid-19 pandemic. Provide at least one example of people’s behavior that could be classified as a positive externality and one as a negative externality. Explain your answer and provide some evidence, such a links to newspaper articles.
positive externalaties could include farmers selling poultry straight to the people rather that wasting the milk or meat due to regulations of the state.
Negative externalaties'-The nature of transmission via person-to-person proximity creates various “externalities”—individuals’ decisions to interact do not fully incorporate the costs imposed on others. In general, people with the disease (symptomatic or not) will have too many infection-causing contacts, and those without the disease will not have the proper incentive to avoid getting it. These “negative externalities” are the main reason for government-imposed social-distancing measures of the type now in effect.
- What are rival or rivalrous goods? Provide 3 examples and explain/justify your answer.
A rival good is a type of good that may only be possessed or consumed by a single user. These items can be durable, meaning they may only be used one at a time, or nondurable, meaning they are destroyed after consumption, allowing only one user to enjoy it. When a good is rival in consumption, competition for the rival good can occur as in the case of people bidding to buy a particular house.
food
, clothing,
electronic goods,
cars,
plane tickets,
houses
- What are non-rival or non-rivalrous goods? Provide 3 examples and explain/justify your answer.
Non-rivalrous goods are public goods that are consumed by people, but whose supply is not affected by people’s consumption. In other words, when an individual or a group of individuals use a particular good, the supply left for other people to use remains unchanged. Therefore, non-rivalrous goods can be consumed over and over again without the fear of depletion of supply.
An example would be a television show. When a show is aired on TV, and a group of twenty people watches it from their home, other groups of people watching the show get to watch exactly the same show, regardless of how many of them are actually watching it together.
Another example would be air. Every single person, from whatever sector in society, can actually breathe the same air from wherever they are in the world. One person’s breathing does not – at least not noticeably – affect the amount of air there is left for other people.
- What are excludable goods? Provide 3 examples and explain/justify your answer.
excludable if it is possible to prevent people (consumers) who have not paid for it from having access to it.
food, clothing, cars, parking spaces
cinemas, private parks, satellite television
- What are non-excludable goods? Provide 3 examples and explain/justify your answer.
Nonexcludable means that it is costly or impossible for one user to exclude others from using a good. Non-excludable goods refers to public goods that cannot exclude a certain person or group of persons from using such goods. As a result, restricting access to the consumption of non-excludable goods is nearly impossible.
Common-pool resources fish stocks, timber, coal
Public goods free-to-air television,
air, national defense
- Define private goods? In your definition make sure that you use rive/nonrival and excludable/non-excludable terms. Provide 3 examples and explain/justify your answer.
A private good is defined in economics as "an item that yields positive benefits to people" that is excludable, i.e. its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits;[2] and rivalrous, i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce, which can cause competition for it.[3] The market demand curve for a private good is a horizontal summation of individual demand curves.
food,
clothing,
cars,
parking spaces
- Define public goods? In your definition make sure that you use rive/nonrival and excludable/non-excludable terms. In addition, how are public goods related to market failure? Provide 3 examples and explain/justify your answer.
Public goods: Public goods are non-excludable and non-rival. Individuals cannot be effectively excluded from using them, and use by one individual does not reduce the good’s availability to others
Market failure occurs when the price mechanism fails to account for all of the costs and benefits necessary to provide and consume a good. The market will fail by not supplying the socially optimal amount of the good.
Prior to market failure, the supply and demand within the market do not produce quantities of the goods where the price reflects the marginal benefit of consumption. The imbalance causes allocative inefficiency, which is the over- or under-consumption of the good.
The structure of market systems contributes to market failure. In the real world, it is not possible for markets to be perfect due to inefficient producers, externalities, environmental concerns, and lack of public goods. An externality is an effect on a third party which is caused by the production or consumption of a good or service.
air we breathe,
public parks,
street lights.
- What is a free rider?
A free rider is a person who benefits from something without expending effort or paying for it. In other words, free riders are those who utilize goods without paying for their use.
Free rider problems are common in every community. Such a situation happens when there are people who want to use a particular good without paying for the good. Free riders want to enjoy the benefits of such goods while hoping that someone else will pay for it or help with its maintenance. For example, a deep well is built for everyone’s use and everyone is expected to contribute their share for its maintenance. Free-riders will just want to use the deep well without helping to bear the cost of it. Because of such people, the service or product provided may not be enough for all or may be compromised. This is an example of how non-excludable goods can have a negative effect on society.
- Define common goods? In your definition make sure that you use rival/nonrival and excludable/non-excludable terms. In addition, how are common goods related to market failure? Provide 3 examples and explain/justify your answer.
Common goods are defined in economics as goods that are rivalrous and non-excludable. Thus, they constitute one of the four main types based on the criteria:
whether the consumption of a good by one person precludes its consumption by another person (rivalrousness)
whether it is possible to prevent people (consumers) who have not paid for it from having access to it (excludability)
Commonly cited market failures include externalities, monopoly, information asymmetries, and factor immobility. One easy-to-illustrate market failure is the public goods problem. Public goods are goods or services which, if produced, the producer cannot limit its consumption to paying customers and for which the consumption by one individual does not limit consumption by others.
are water and air.
Water and air can be polluted: water flows can be tapped beyond sustainability,
air is often used in combustion,
-https://en.wikipedia.org/wiki/Common_good
- What is meant by “the tragedy of the commons”?
The tragedy of the commons is a problem that occurs when individuals exploit a shared resource to the extent that demand overwhelms supply and the resource becomes unavailable to some or all. The tragedy of the commons has implications for the use of resources and sustainability. Depletion of non-renewable resources is an example of the tragedy of the commons in action. Non-renewable resources, such as water, are often used as if the supply were limitless. Similarly, the reliance on fossil fuels is not only unsustainable but is demonstrably damaging the environment.
- What are club goods? In your definition make sure that you use rive/nonrival and excludable/non-excludable terms. In addition, how are club goods related to market failure? Provide 3 examples and explain/justify your answer.
Club goods (also artificially scarce goods) are a type of good in economics, sometimes classified as a subtype of public goods that are excludable but non-rivalrous, at least until reaching a point where congestion occurs. Often these goods exhibit high excludability, but at the same time low rivalry in consumption. Because of that low rivalry in consumption characteristic, club goods have essentially zero marginal costs and are generally provided by what is commonly known as natural monopolies. Furthermore Club goods have artificial scarcity. Club theory is the area of economics that studies these goods. One of the most famous provisions was published by Buchanan in 1965 "An Economic Theory of Clubs", in which he addresses the question of how the size of the group influences the voluntary provision of a public good and more fundamentally provides a theoretical structure of communal or collective ownership-consumption arrangements.
Public goods contrast with private goods. Pure public goods have the unique characteristics of non-excludability and non-rivalry in consumption while private goods are sold to those who can afford to pay the market price. The under-supply equilibrium of a public goods provision is an important aspect of the provision of public goods. The economic theory of clubs represents an attempt to explain the under-supply equilibrium of a public goods provision. It raises many different and controversial issues which impinge on government policy in the public sector. In many respects, a club provision proffers an alternative to a central government provision of local public goods
cinemas,
cable television,
access to copyrighted works, and the services provided by social or religious clubs to their members
- Put the terms 1) private goods, 2) public goods, 3) common goods, and 4) club goods into the following table:
Connection to COVID19
Connection to COVID19
Now focus on COVID 19 pandemic.
16. In the context of this pandemic, provide an example to explain the concept of a private good. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
16. In the context of this pandemic, provide an example to explain the concept of a private good. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
Some examples of a concept of a private good would be toilet paper and hand sanitizer. The governments roll should be to step in and stop people from buying more than they need and they should also stop price gouging. A policy that should be put in place is people can only buy a certain amount so everuyone can have.
17. In the context of this pandemic, provide an example to explain the concept of a public good. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
17. In the context of this pandemic, provide an example to explain the concept of a public good. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
I Think an important public good would be Water or atleast after this pandemic it should be. This pandemic shows us what exactly is important in keeping healthy and water is one. In order for you to clean you need water so it should be free. The governments roll should be paying for water or atleast make sure everyone even the projects has water.
https://www.nytimes.com/2020/04/14/style/good-news-coronavirus.html
18. In the context of this pandemic, provide an example to explain the concept of a free rider. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
18. In the context of this pandemic, provide an example to explain the concept of a free rider. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
There is less incentive for them to get vaccinated, and then, the so-called first-order free-rider problem3 arises. Some reports suggest that the welfare of a society can be threatened if too many individuals perceive the herd immunity as a public good.4 As a result, too much self-interest destabilizes the herd-immunity state, and the disease resurges. This paradox makes complete eradication of the disease difficult under a voluntary vaccination policy, and causes a conflict between the optimal vaccination behavior for each individual and the sufficient level of vaccination needed to protect the whole society via the herd immunity5 In addition, the number of vaccinated individuals may be reduced by underestimates of infection risk due to lack of knowledge about the disease and/or by overestimation of vaccine risk based on scientifically groundless information. I think the government should make it mandatory for everyone to be vaccinated. They do it in other countries.
https://www.democracywithoutborders.org/12901/we-need-a-global-health-system-to-deal-with-pandemics/
19. In the context of this pandemic, provide an example to explain the concept of a tragedy of the commons. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
19. In the context of this pandemic, provide an example to explain the concept of a tragedy of the commons. What should the government roll be in this case? What public policy do you recommend, if any? Explain your answer and provide links to the related material.
The tragedy of the commons states that individuals acting independently and rationally according to each's self-interest behave contrary to the best interests of the whole group by depleting some common resource. The resources that I can think of is toilet paper and food. what the government should do is regulate by how many people are in your family on how much food you can get.
https://www.dailysabah.com/opinion/columns/lack-of-global-safety-is-tragedy-of-the-commons
Few Interesting Economics Research Articles Related to COVID-19 pandemic
Few Interesting Economics Research Articles Related to COVID-19 pandemic
20. Read the working paper The Impact of COVID-19 on Gender Equality by Titan M. Alon, Matthias Doepke, Jane Olmstead-Rumsey, Michèle Tertilt.
20. Read the working paper The Impact of COVID-19 on Gender Equality by Titan M. Alon, Matthias Doepke, Jane Olmstead-Rumsey, Michèle Tertilt.
What do they say about gender equality as result of the shelter-in-place, shutdowns, or lockdowns orders? 200 word summary
What do they say about gender equality as result of the shelter-in-place, shutdowns, or lockdowns orders? 200 word summary
After reading The Impact of COVID-19 on Gender Equality by Titan M. Alon it shows how women are more impacted by this pandemic than men. There was already a gender quality gap before the pandemic and there is now an even bigger gap. Women can’t depend on anyone else during this pandemic because schools have closed down and childcares. Women have to take the responsibility to take care of their own children. Single women will feel it more than married women because the government is also saying elderly are more vulnerable so that leaves granparents out as baby sitters.
Neighbors cant watch kids becuase they to are afraid of getting the virus. Taken together, these factors suggest that the COVID-19 pandemic will have a disproportionate negative effect on women and their employment opportunities. Women will lose there jobs because more women work in healthcare facilities or public works such as restaurants, hotels. Usually during a recession men lose their jobs but in this pandemic women have little help. Some men will lose their jobs becuase the wife who may be a doctor is more needed than he is or he might be able to work from home. The stay at home order or shelter in place has affected many people but most of those people are women with children.
21. Read the working paper (introduction and conclusion will suffice – the rest of the paper might be a bit too technical) Health versus Wealth: On the Distributional Effects of Controlling a Pandemic by Andrew Glover, Jonathan Heathcote, Dirk Krueger, Jose-Victor Rios-Rull.
21. Read the working paper (introduction and conclusion will suffice – the rest of the paper might be a bit too technical) Health versus Wealth: On the Distributional Effects of Controlling a Pandemic by Andrew Glover, Jonathan Heathcote, Dirk Krueger, Jose-Victor Rios-Rull.
What are some of the “distributional implications” mentioned in this paper as a result of the “lock-down” policies? 200 word summary
What are some of the “distributional implications” mentioned in this paper as a result of the “lock-down” policies? 200 word summary
The central debate about the appropriate economic policy response to the global COVID19 pandemic is about how aggressively to restrict economic activity in order to slow down the spread of the virus and how quickly to lift these restrictions as the pandemic shows signs of subsiding. In this paper, we argue that one reason people disagree about the appropriate policy is that “lock-down” policies have very large distributional implications. These distributional effects mean that different groups prefer very different policies. The young groups dont understand the importance of staying in place. They want to be with their friend or finish school with memories. The elderly just want everyone to follow the rules because they are the ones mostly affected.
The paper takes different groups and show how and when they can affect others even without having the disease.. The a, f , and e groups all carry the virus – they are subsets of the infected group in the standard SIR model – and can pass it onto others. However, they differ in their symptoms. The asymptomatic have no symptoms or very mild ones and thus unknowingly spread the virus. We model this state explicitly (in contrast to the prototypical SIR model) because a significant percentage of individuals infected with COVID-19 experience no symptoms. Those with flu-like symptoms are sufficiently sick to know they are likely contagious, and they stay at home and avoid the workplace and market consumption. Those requiring emergency care are hospitalized. The recovered are again healthy, no longer contagious, and immune from future infection. A worst-case virus progression is from susceptible to asymptomatic to flu to emergency care to dead However, recovery is possible from the asymptomatic, flu, and emergency-care states.
Cost-Benefit Analysis
Cost-Benefit Analysis
22. Provide some estimates and evidence of how much will our economy shrink as a result of the shelter-in-place, shutdowns, or lockdowns orders. In other words, how much will GDP shrink as a result of this shutdown?
22. Provide some estimates and evidence of how much will our economy shrink as a result of the shelter-in-place, shutdowns, or lockdowns orders. In other words, how much will GDP shrink as a result of this shutdown?
Under the assumption that the pandemic and required containment peaks in the second quarter for most countries in the world, and recedes in the second half of this year, in the April World Economic Outlook we project global growth in 2020 to fall to -3 percent. This is a downgrade of 6.3 percentage points from January 2020, a major revision over a very short period. This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis.This is a truly global crisis as no country is spared. Countries reliant on tourism, travel, hospitality, and entertainment for their growth are experiencing particularly large disruptions.
23. Can you think of any other side effects, negative consequences of this lockdown – besides the decrease in the GDP? Provide evidence for your answers
23. Can you think of any other side effects, negative consequences of this lockdown – besides the decrease in the GDP? Provide evidence for your answers
The Negative consequences I think this lockdown will cause is many health problems that cant be seen. For example depression and anxiety. This will also cause fear many will be afraid to go back to normal(what ever that is). I think we will see a spike in Antidepressents being distributed.
24.How does our society value human life? What methods do economists use to estimate the value human life? What is the statistical value of a single life in the US?
24.How does our society value human life? What methods do economists use to estimate the value human life? What is the statistical value of a single life in the US?
The idea that a life could have a monetary value isn’t necessarily easy to swallow from an ethical perspective. Economists and government regulators have to balance the risk of death against all kinds of other factors, though, and the concept of the VSL was developed several decades ago because economists didn’t like the idea of assigning that value through other, more intuitive means, like our contributions to the economy as workers. “It’s fairly simple to value someone’s life based on how much money they make The VSL, instead of trying to sum up the value of a life, approaches the question from the other direction — how much are we willing to spend to reduce the odds of dying?
Economists draw the numbers from multiple sources, including surveys and assumptions about our own choices, like how much additional money people earn for especially dangerous jobs, or how much a premium they’ll pay for a safer car. The estimates do vary, but they fall in the same basic range — the EPA’s valuation falls around $9.4 million, while Viscusi’s latest calculation is $10 million. To put it another way, Viscusi’s estimate means that if a group of 10,000 people is facing a 1-in-10,000 risk of death, they’re willing to pay $1,000 per person to reduce the odds that any given member of the community will die.
25. Provide some estimates and evidence about the number of lives saved as a result of the lockdown? How can one determine how many lives will be saved?
25. Provide some estimates and evidence about the number of lives saved as a result of the lockdown? How can one determine how many lives will be saved?
At least 59,000 lives have already been saved in 11 European countries due to the social distancing measures introduced to stem the spread of Covid-19, new modelling suggests. According to the analysis, 370 deaths have already been averted in the UK - where a nationwide lockdown came into effect just one week ago - while Italian interventions have saved 38,000 lives to date. But the study also shows that the continent remains a long way from developing “herd immunity”, whereby the vast majority of people have caught, recovered and become immune to the coronavirus.
The modelling, published yesterday by Imperial College, London, analyses the impact of lockdown in 11 European countries, including the UK.
Policy Analysis
Policy Analysis
26. What is a paycheck protection program that was just passed in response to the COVID19 pandemic recession? What are some issues with it?
26. What is a paycheck protection program that was just passed in response to the COVID19 pandemic recession? What are some issues with it?
The Paycheck Protection Program is a loan program that originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This is a nearly $350-billion program intended to provide American small businesses with eight weeks of cash-flow assistance through 100 percent federally guaranteed loans. The loans are backed by the Small Business Administration (SBA) You can read the bill in its entirety here.
Program highlights
Program highlights
All small businesses are eligible
The loan has a maturity rate of 2 years and an interest rate of 1%
No need to make loan payments for the first six months
No collateral or personal guarantees required
No fees
The loan covers expenses for eight weeks starting from the loan origination date (if the obligations began before February 15, 2020)
The loan can be forgiven and essentially turn into a non-taxable grant
https://bench.co/blog/operations/paycheck-protection-program/
27. What is US Corona Virus Stimulus package? Can you explain who gets what, and how much, according to this stimulus.
27. What is US Corona Virus Stimulus package? Can you explain who gets what, and how much, according to this stimulus.
The stimulus package is a $2 trillion relief package is sending money directly to individuals , greatly expanding unemployment coverage, student loan changes, different retirement account rules and more. Those who get the check is 1,2000 for those who make 75,000 dollars or less, 2,400 for married couples who in total make 150,000 dollars or less and 1,200 for head of households who make 112,500 dollars or less . Families will get an additional $500 per child below age 17. Most college students would not get the check because they are dependent and rely on their parents for expenses.
28. Given your analysis above, do you believe that the policies implemented both by the Federal and State governments make sense. Why/ why not?
28. Given your analysis above, do you believe that the policies implemented both by the Federal and State governments make sense. Why/ why not?
I believe the government is off to a good start. Do I think it will stimulate the economy no because families cant just survive on a one time payment. If jobs are going to be closed down people are going to need more to live on. I believe non'essential work should be closed but we are going to need more than a one time payment to get us out of this one.
29. Can you come up with a different and possibly better approach for handling this pandemic? Be as precise as possible and provide data and evidence for your argument.
29. Can you come up with a different and possibly better approach for handling this pandemic? Be as precise as possible and provide data and evidence for your argument.
What I would do if I was in charge of this pandemic crisis, I would have closed down non essiantial work and travel. The first case that came out I would stop all flights and close everything down even schools. I would rationalize how many essentials people could buy. I would close the borders for atleast a month. I would come up with a stimulus package that would help families monthly instead of a one time payment. I would update the public daily as to what is going on. I would also wear a mask in public so others would follow me. what ever rules I implement I would follow as well.
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