NAME: DESAME M.

SANIEL
YEAR& SECTION: BSED SOC SCI 2D

Directions: Answer briefly and concisely. You may put your answers in a yellow paper/bond paper
or in a word file/pdf format. Send your answers to my email (jericoaberilla@gmail.com).

CHAPTER 10
Analysis/Application
1. Consider the market for fire extinguishers.
a. Why might fire extinguishers exhibit positive externalities in consumption?

The fire extinguisher exhibit positive externalities because even though people to buy
them for their own use, they also may prevent fire from damaging the property of
others so that lessen causes.

b. Draw a graph of the market for fire extinguishers, labeling the demand curve, the social-
value curve, the supply curve, and the social-cost curve.

This figure below illustrates the

positive externality from the fire
extinguishers. That will notice the
social- value curve is in the above of
the demand curve and the social-cost
curve is will the same at as the supply
curve.
 c. Indicate the market equilibrium level of output and the efficient level of output.
Give an intuitive explanation for why these quantities differ.

In market equilibrium the level of output is denoted Q and the efficient level of
market
output is Denoted Q .The quantities is differ it is because in deciding to buy fire
Optimum
extinguishers, people and don’t in account for the benefits that they provided to others.

d. If the external benefit is P500 per extinguisher, describe a government policy that would
result in the efficient outcome.

When the government policy would result in the efficient outcome would be to
subsidize the people P500 for every fire extinguisher will they buy. So it would shift
demand curve up to social-value curve, and also the market quantity would be increase to
the optimum quantity.

2. Ringo loves playing rock and roll music at high volume. Luciano loves opera and hates rock and
roll.
Unfortunately, they are next-door neighbors in an apartment building with paper-thin
walls.

a. What is the externality here?

The externality is the noise population. Will Ringo’s consumption of the rock
and roll music will affects Luciano, but Ringo does not consider it in deciding how
loudly he plays his music towards them.

b. What command-and-control policy might the landlord impose? Could such a policy lead
to an inefficient outcome?

The landlord imposed a rule that music could not be played above certain decibel level
and it could be inefficient because there it would be no harm done by Ringo playing his
music so loud and if Luciano is not home along.
 c. Suppose the landlord lets the tenants do whatever they want. According to the Coase
theorem, how might Ringo and Luciano reach an efficient outcome on their own? What
might prevent them from reaching an efficient outcome?

When Ringo and Luciano would negotiated by an agreement that will might, like
example of Ringo allow to play his music loudly in certain times of day. They might also
not be reach an agreement if their transaction cost is high or if it is bargaining fail it’s
because each holds out for better deals.

3. Suppose that the government decides to issue tradable permits for a certain form of pollution.

a. Does it matter for economic efficiency whether the government distributes or

auctions the permits? Does it matter in any other ways?

Auctioning the pollution permit will be more efficient than distributing it. This is
because in auction the permits will be priced fairly and will be allocated to those firms
who need it the most (if they can pay for it).

b. If the government chooses to distribute the permits, does the allocation of permits among
firms matter for efficiency? Does it matter in any other ways?

Yes the allocation of permits among the firms matter from economic efficiency point
of view because the permits should be with those firms who value it the most. Distributing
the permits won't ensure that. But as we know that the permits are tradable so they might
be traded among the firms and might produce the same outcome in terms of social cost as
if the permits were auctioned

Assessment

1. Give an example of a negative externality and an example of a positive externality.

EXAMPLE POSITVE EXTERNALITY

Hillary newly cut lawn makes her neighborhood more attractive.

EXAMPLE NEGATIVE EXTERNALITY

Hillary play loud music at night, the neighbour may not able to sleep.

2. Imagine that you are a nonsmoker sharing a room with a smoker. According to the Coase theorem, what
determines whether your roommate smokes in the room? Is this outcome efficient? How do you and
 your roommate reach this solution?

According to the Coase theorem if the cost incurred by me then when my room mate smokes
is smaller than the benefit she gets from smoking then she would continue to smoke.
Yes, this outcome is efficient.
We reach that solution by negotiation. She pays me for some cost I incurred and I let her smoke
in the room.

3. What are Pigovian taxes? Why do economists prefer them over regulations as a way to protect the
environment from pollution?

An incentive based government policy designed to lower quantity to efficient amount.

Economists prefer corrective taxes over regulations as a way to protect the environment from
pollution because they can reduce pollution at a lower cost to society. A tax can be set to reduce
pollution to the same level as a regulation.

CHAPTER 11
Analysis/Application
1. The content in this chapter says that both public goods and common resources involve
externalities.
a. Are the externalities associated with public goods generally positive or negative? Use
examples in your answer. Is the free-market quantity of public goods generally greater or less
than the efficient quantity?

Externality associated with public goods is generally positive. This is because people
attach some value to the good and use it but they don't pay for it. National defense is a public good.
The free market quantity is lesser than the efficient quantity.

b. Are the externalities associated with common resources generally positive or negative?
Use examples in your answer. Is the free-market use of common resources generally greater or
less than the efficient use?

Negative.
Fish in the ocean is an example. If one person catches fish then that act makes other people worse off.
Efficient quantity is less than the market equilibrium quantity.

2. Why is there litter along most highways but rarely in people’s yards?
 Littering in your own yard imposes costs to you, so you are less likely to do it.

When a person litters along a highway, others bear the negative externality of having to clean
it up.

3. Do you think the Internet is a public good? Why or why not?

Assessment
1. Explain what is meant by a good being “excludable.” Explain what is meant by a good being
“rival.” Is a pizza excludable? Is it rival?

A good is excludable means it is possible to prevent someone from using it. A good is
rival in consumption if one person's use of the good reduces other person's ability to use the same
good.
A slice of pizza is both excludable and rival in consumption.

2. Define and give an example of a public good. Can the private market provide this good on its
own?
Explain.

3. What is cost-benefit analysis of public goods? Why is it important? Why is it hard?

A study that compares the costs and benefits to society of providing a public good.

4. Define and give an example of a common resource. Without government intervention, will people
use this good too much or too little? Why?

Common resources are rival in consumption but not excludable. Examples include common
grazing land, clean air, congested roads etc.
Without government intervention people tend to use common resource excessively as they are not
charged for its use
CHAPTER 12
Analysis/Application
1. In a published source or on the Internet, find out whether the Philippine government had a budget
deficit or surplus last year. What do policymakers expect to happen over the next few years?

2. Some countries exclude necessities, such as food and clothing, from their sales tax. Other states
do not. Discuss the merits of this exclusion. Consider both efficiency and equity.

3. Categorize each of the following funding schemes as examples of the benefits principle or the
ability-topay principle.
a. Visitors to many national parks pay an entrance fee.

his is an example of the benefit principle since people pay the same amount of money
for the ticket, no matter how big their income is, and they receive the benefit of enjoying there.

b. Local property taxes support elementary and secondary schools.

This could be classified under the ability to pay principle because the property tax is
higher when the owned property is higher and also the ability to pay tax.

c. An airport trust fund collects a tax on each plane ticket sold and uses the money to
improve airports and the air traffic control system.

This could be classified under the benefit principle. People who travel have some
benefits of it and pay the tax, which is used for general improvements at the airport and air traffic
control system.

Assessment
1. What are the two most important sources of revenue for the Philippine government?
 The Philippine government generates revenues mainly through personal and income tax
collection, but a small portion of non-tax revenue is also collected through fees and licenses,
privatization proceeds and income from other government operations and state-owned enterprises.

2. Why is the burden of a tax to taxpayers greater than the revenue received by the government?

this is because of a tax decreases net income of an individual and it distracts people
incentive. Government gains revenue, but the individual has a major loss and decreases in his well-
being is greater than this.

3. Describe the arguments for and against replacing the current tax system with a flat tax.

CHAPTER 13
Analysis/Application
1. This chapter discusses many types of costs: opportunity cost, total cost, fixed cost, variable cost,
average total cost, and marginal cost. Fill in the type of cost that best completes the phrases
below:
a. The true cost of taking some action is its __ opportunity cost. _____.
b. ___ Average total cost____ is falling when marginal cost is below it, and rising when
marginal cost is above it.
c. A cost that does not depend on the quantity produced is a ___fixed cost.____.
d. In the ice-cream industry in the short run, _ variable cost______ includes the cost of
cream and sugar, but not the cost of the factory.
e. Profits equal total revenue less __ total cost_____.
f. The cost of producing an extra unit of output is __ marginal cost_____.
2. Your aunt is thinking about opening a hardware store. She estimates that it would cost
P25,000,000 per year to rent the location and buy the stock. In addition, she would have to quit
her P2,500,000 per year job as an accountant.
a. Define opportunity cost.

The opportunity cost of something is what must be forgone to acquire it.

 b. What is your aunt’s opportunity cost of running a hardware store for a year? If your aunt
thought she could sell P25,500,000 worth of merchandise in a year, should she open the store?
Explain.

The opportunity cost of running the hardware store is $550,000, consisting of $500,000 to
rent the store and buy the stock and a $50,000 opportunity cost, since your aunt would quit her job as
an accountant to run the store.

3. A commercial fisherman notices the following relationship between hours spent fishing and the
quantity of fish caught:
HOURS QUANTITY OF FISH (kgs)
0 0
1 10
2 18
3 24
4 28
5 30
a. What is the marginal product of each hour spent fishing?

HOUR FISH FIXED VARIABLE TOTAL MARGINAL

COST COST COST PRODUCT

0 O 10 0 10 -----
1 1O 10 5 15 10
2 18 10 10 20 8
3 24 10 15 25 6
4 28 10 20 30 4
5 30 10 25 35 2

b. Use these data to graph the fisherman’s production function. Explain its shape.
  This graph shows that the
fisherman’s production
function will function
becomes flatter as the
number of hour spent fishing
increases, Illustrating
diminishing marginal
production.

c. The fisherman has a fixed cost of P500 (his pole). The opportunity cost of his time is
P100 per hour. Graph the fisherman’s total-cost curve. Explain its shape.

 The graph shows that the

fixed cost , variable cost, and
total cost of fishing. The
fisherman’s total-cost curve
is has an upward slope
because catching additional
fish takes additional time.
The curve is convex because
there are diminishing returns
to fishing time because each
additional hour spent fishing
yields fever additional fish.

4. Your cousin Vinnie owns a painting company with fixed costs of P10,000 and the following
schedule for variable costs:
QUANTITY OF HOUSES PAINTED PER
 MONTH
1 2 3 4 5 6 7
Variable Costs P500 P1,000 P2,000 P4,000 P8,000 P16,00 P32,00
0 0
Calculate average fixed cost, average variable cost, and average total cost for each quantity. What
is the efficient scale of the painting company?

5. Consider the following table of long-run total cost for three different firms:
QUANTIT
Y
1 2 3 4 5 6 7
Firm A P3,000 P3,500 P4,000 P4,500 P5,000 P5,500 P6,000
Firm B P550 P1,200 P1,950 P2,800 P3,750 P4,800 P5,950
Firm C P1,050 P1,700 P2,450 P3,300 P4,250 P5,300 P6,450
Does each of these firms experiencing economies of scale or diseconomies of scale?

Assessment
1. What is the relationship between a firm’s total revenue, profit, and total cost?

the relationship between a firm's total revenue, profit, and total cost is profit equals total
revenue minus total costs

2. What is marginal product, and what does it mean if it is diminishing?

the law of diminishing marginal returns states that when an advantage is gained in a factor
of production, the marginal productivity will typically diminish as production increases. This means
that the cost advantage usually diminishes for each additional unit of output produced

3. Define total cost, average total cost, and marginal cost. How are they related?
 total cost consists of the costs of all inputs needed to produce a given quantity of output. It
includes fixed costs and variable costs. Average total cost is the cost of a typical unit of output and is
equal to total cost divided by the quantity produced. Marginal cost is the cost of producing an
additional unit of output and is equal to the change in total cost divided by the change in quantity. An
additional relation between average total cost and marginal cost is that whenever marginal cost is less
than average total cost, average total cost is declining; whenever marginal cost is greater than average
total cost, average total cost is rising

4. Draw the marginal-cost and average-total-cost curves for a typical firm. Explain why the curves
have the shapes that they do and why they cross where they do.

5. Define economies of scale and explain why they might arise. Define diseconomies of scale and
explain why they might arise.