Microeconomic concepts behind some major national problems

Agriculture

The Short Run: Price and Income Instability

Price and Income Instability in agriculture results from 1. An inelastic demand for agricultural products 2. Fluctuations in farm output * Farmers have limited control over their input (floods, droughts, insect damage, calamities) 3. Shifts of the demand curve for farm products *Because of the highly inelastic demand for farm products, a small shift in demand for farm products can drastically alter agricultural prices. A slight decline in demand will reduce farm income by a large amount.

Long Run: A declining Industry

1. Over time, the supply of farm products has increased rapidly because of technological progress 2. The demand for farm products has increased slowly, because it is inelastic with respect to income.

Pollution

Pollution
The ultimate cause of pollution is human activity itself. Pollution is a human contribution to nature. Human activities mainly include: Industries for various human needs Agriculture for food production and industrial needs Transport for mobility of human beings Dwelling for settlement in city or villages

How can it affect the economy?

Healthcare costs will rise Law suits on industries Disasters such as hurricanes and tornadoes will become more prevalent with global warming. That will increase costs such as insurance, taxes (for disaster relief), damaged goods, damaged resources etc.

Fresh water will need to be rationed. Probably even a black market commodity, adding another non-taxable cost to people.

Global warming will have a greater toll on smaller more impoverished countries.

Negative Externality
So recall: An externality, in the economic world, occurs when people not directly involved in a decision are affected by it. What is negative externality? Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid.

Most common example of negative externality is pollution since it imposes external costs in the society.

 This graph shows the effect of a negative externality. The red line represents society's supply curve/marginal cost curve while the black line represents the marginal cost curve that the firm or industry with the negative externality faces. The optimal production quantity is Q', but the negative externality results in production of Q*. The deadweight welfare loss is shown in grey.