Here is the whole homework. Due date Feb 07/11Instructions: Briefly explain one page for each question: Question #1: Which of the 10 principles applies to chapter 4: Pollution Problems? Question #2: Which of the 10 principles applies to chapter 5: Economics of Crime? Mankiw’s 10 principles of Economics1.People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another. 2.The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions. 3.Rational People Think at the Margin.A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost. 4.People Respond to Incentives.Behavior changes when costs or benefits change. 5.Trade Can Make Everyone Better Off.Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services. 6.Markets Are Usually a Good Way to Organize Economic Activity.Households and firms that interact in market economies act as if they are guided by an “invisible hand” that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government. 7.Governments Can Sometimes Improve Market Outcomes.When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution. 8.A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services.Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation’s productivity grows, so does its average income. 9.Prices Rise When the Government Prints Too Much Money.When a government creates large quantities of the nation’s money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services. 10.Society Faces a Short-Run Tradeoff Between Inflation and Unemployment.Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes,government spending and monetary policy. Question #1: Which of the 10 principles applies to chapter 4: Pollution Problems? Make a brief explanation of one page.Chapter 4: POLLUTION PROBLEMSOBJECTIVES•Upon completion of this lesson, you will be able to understand:–What is Pollution?–Markets, Resource Allocation, and Well-Being–Economics of Pollution–What can be Done about pollutionWHAT IS POLLUTION?•When towns and cities came into existence, pollution raised more serious problems•Three types of pollution:–Air–Water–Land•The pollution problem arises primarily from the use of the environment by producers and consumers as a dumping ground for wastes. We litter the countryside with cans, paper, and the other residues of consumption and production. We dump the emissions from our automobiles and factories into the atmosphere. We empty sewage and residue from production directly and indirectly into streams, rivers, and lakes.•Pollution is as old as civilization itself. Wherever people have congregated, their wastes have tended to pile up more rapidly than the forces of nature can digest them. When towns and cities came into existence, pollution raised more serious problems.•So how can we control pollution? First you must be able to identify it as accurately as possible; they can fall into the three categories: air, water, and land.•With air pollution five major wastes are dumped into the atmosphere. These wastes include: carbon monoxide, sulfur dioxides, nitrogen oxides, hydrocarbons, and particulates.•Water pollution is ordinarily measured in terms of the capacity of water to support aquatic life. This capacity depends on the level of dissolved oxygen in the water and the presence of matter or materials injurious to plant and animal life.•Land pollution results from the dumping of a wide variety of wastes on the terrain and from tearing up Earth’s surface through such activities as strip mining.MARKETS, RESOURCE ALLOCATION, AND SOCIAL WELL BEING•Marginal Private Benefit (MPB)•Market Demand Curve•As consumers, we make purchases for the satisfaction that consumption brings. If our goal in these purchases is to maximize our own well-being, given our income constraints, cost-benefit analysis suggests that we should not make a particular purchase unless the benefit to us from the purchase is at least as great as its cost.•Is this logic found in a demand curve? Typically we think of a demand curve as indicating the maximum quantity of a good or service that consumers will buy at various prices, other things being equal. An equally valid way of looking at demand is as the maximum price that consumers would be willing to pay for each successive unit of a good or service, other things being equal.•A market demand curve can correctly be thought of as a marginal benefit curve for the consumers of a good or service. More precisely, since the market demand is based on the benefits expected by the direct consumers of the product, it reflects the marginal private benefit of consumption.ECONOMICS OF POLLUTION•We will now examine the reasons pollution occurs, analyze the effects of pollution on resource allocation, look at the costs of pollution control, and identify its benefits.•Ordinarily pollution results from one or both of two basic factors: •One. Property rights in the environment being polluted are either nonexistent or not enforced.•And two. Much of the environment’s services are shared by the entire population.•Supply curves indicate the marginal private cost of producing a good or service. •Before we go further, however, we need a better understanding of what is actually being referred to when we discuss the costs of producing a good or service. •The costs of resources bought or hired for carrying on the business are called the explicit cots of production. •These are the economic costs that are most likely to be taken into account by the business, since they are usually actual cost outlays. •The costs of self-owned, self-employee resources are called implicit costs of production. •These economic costs tend to be hidden or ignored as costs since there is no actual cost outlay. •As such, the true cost to society of producing a good or service, what we call opportunity cost or economic cost, can be accurately measured only if one takes into account both the explicit and implicit costs of the activity.•The figure above shows the effects of water pollution on the polluter. •The market for paper is in equilibrium when R1 reams of paper per day are produced and sold for nine dollars per ream. •At this level of production, the marginal supply curve is greater than marginal-social-benefit; thus, social well-being would be enhanced if production were reduced to the R-zero level. •The value of well-being lost by the overproduction of paper is equal to the area of the shaded triangle ABC.•Now let’s consider the market for electric power. •The market for electric power is in equilibrium when E-zero kilowatt-hours per day are produced and sold for twelve cents per kilowatt-hour. •At this level of production, the marginal-social-benefit is greater than the marginal-social cost; thus, social well-being would be enhancing if production increased to the E-one level. •The value of well-being lost by the underproduction of power is equal to the area of the shaded triangle ABC.What is The Appropriate Level of Pollution Control•If the marginal social benefit of additional control exceeds the marginal social cost of the additional control, then pollution control should be expanded. •Pollution control is not costless. •Labor and capital go into the making and operation of antipollution devices, and resources so used are not available to produce other goods and services. •The value of the goods and services that must be given up is the cost of the plant’s pollution control activities.•The benefits of pollution control consist of the increase in well-being that members of society feel when they have the opportunity to experience a cleaner environment. •To measure the benefits of a pollution control activity, the value of the increase in well-being that it generates must be accurately estimated.•Once the costs and benefits of pollution control are determined, it becomes possible to establish the appropriate level of control. •If the marginal social benefit of additional control exceeds the marginal social cost of the additional control, then pollution control should be expanded. •Pollution control should therefore be expanded up to the point where the marginal social benefit just ceases to exceed the marginal social cost. •Once again, cost-benefit analysis in action.WHAT CAN BE DONE ABOUT POLLUTION?•Direct Controls–3 problems•Indirect Controls•An appealing and simple way to control pollution is to have the government ban pollution activities or agents. Government agencies, notably the Environmental Protection Agency at the federal level, use direct controls to reduce many kinds of polluting activities. They set and attempt to enforce emission standards for such polluters as automobiles, power plants, and steel mills. State regulation of polluters, to the extent that it is accomplished, is, in general, supervised by the EPA.•One problem raised by the use of direct controls to limit the amount of pollution is that it presupposes the regulatory body can determine what the economically desirable levels of pollution are. This is not an insurmountable problem. Tolerance limits on the amount of pollution to be allowed can be reasonably well established. Within those limits, overall costs can be weighed continually against benefits to establish an approximation of the desirable levels of pollution.•A second problem is the difficulty facing a regulatory body in achieving an efficient allocation of the permissible pollution among different polluters.•And the third problem is that of enforcing the standards of emissions once it has been determined what those standards should be.•It is possible for the government to control many types of pollution by placing taxes on polluting activities. Where the amounts of polluting discharges can be measured for individual polluters, a tax can be placed directly on each unit of discharge. This will induce the polluter to reduce the amount of pollution that is discharged. In some cases where such measurement is not possible, polluters may be taxed indirectly.•The figure above illustrates the use of tax to control the amount of pollutants discharged into the environment. Consider an industrial concern that discharges its polluting wastes into a river.•When the tax exceeds the marginal cost of control, a firm will choose to eliminate its polluting discharge and avoid the tax. If the cost and benefits of pollution control can be accurately estimated, a tax can be established that will cause the firm to voluntarily produce the appropriate level of pollution control.CREATION OF POLLUTION RIGHTS MARKET•Pollution Rights Market–Firms buy and sell government –issued licenses to pollute–State determines amount of discharge allowed•It is possible to bring about the optimal level of pollution control in a cost-efficient manner through the establishment of a pollution rights market, in which firms buy and sell government-issued licenses to pollute. •Specifically, the state can determine how much discharge it wishes to allow based on marginal social benefit and marginal social cost analysis, print licenses or permits that in total grant the holders the right to discharge the optimal amount, and then allocate the polluting firms a share of these licenses.SUMMARY•What is Pollution?•Markets, Resource Allocation, and Well-Being•Economics of Pollution•What can be Done about pollution•First, we discussed pollution. With air pollution five major wastes are dumped into the atmosphere. These wastes include: carbon monoxide, sulfur dioxides, nitrogen oxides, hydrocarbons, and particulates. Water pollution is ordinarily measured in terms of the capacity of water to support aquatic life. This capacity depends on the level of dissolved oxygen in the water and the presence of matter or materials injurious to plant and animal life.•Next, we reviewed markets, resource allocation, and well-being. As consumers, we make purchases for the satisfaction that consumption brings. If our goal in these purchases is to maximize our own well-being, given our income constraints, cost-benefit analysis suggests that we should not make a particular purchase unless the benefit to us from the purchase is at least as great as its cost.•Then we considered the economics of pollution. Here we discussed reasons pollution occurs, analyze the effects of pollution on resource allocation, look at the costs of pollution control, and identify its benefits.•Finally, we learned what can be done about pollution. Here we discussed direct and indirect controls. Government agencies, notably the Environmental Protection Agency at the federal level, use direct controls to reduce many kinds of polluting activities. They also use indirect controls such as taxation.Question #2: Which of the 10 principles applies to chapter 5: Economics of Crime? Make a brief explanation of one page.Chapter 5: ECONOMICS OF CRIMEOBJECTIVES•Upon completion of this lesson, you will be able to understand:–What is Crime?–The Costs of Crime–Individually and Collectively consumed Goods–The economics of crime prevention activitiesWHAT IS CRIME?•Criminal act is one the society has decided it is better off without•Classes of Acts:–Violent Crimes–Crimes against property–Traffic in illegal goods and services–Other crimes•Crime problem improving•A definition that seems to be meaningful and useful analytically is that a criminal act is one that society has decided it is better off without and which it has therefore made illegal through laws, ordinances, and the like. It may or may not be immoral.•Acts that are illegal or criminal are designated as such by legislative bodies, such as city councils, state legislature, and Congress. There are a number of reasons for making certain acts illegal. Some acts may be unacceptably offensive, others may lead to consequences, and some acts may carry no taint of immorality but may be made illegal because they are considered contrary to the general welfare of the society.•For purposes of reporting crime rates, the Department of Justice classifies criminal acts as violent crimes and crimes against property. We can add to the classification traffic in illegal goods and services and other crimes.•Crime is generally thought to be a very serious problem in the United States. Even though the crime situation today is better than it was back in 1980.THE COSTS OF CRIME•Crime has economic costs•Current reports on crime are concerned solely with the number of crimes committed, not with dollar estimates of their costs•Satisfactory measure of costs of crime, in terms of G-D-P lost because of it, have not yet been devised•Crime definitely has economic costs. The basis for measuring the cost of crime is the opportunity cost principle. The net economic cost of crime to the society is thus the difference between what the gross domestic product would be if there were neither criminal nor crime prevention activities and what Gross Domestic Product, or GDP currently is, given present criminal and crime prevention activities.•Current reports on crime are concerned solely with the number of crimes committed, not with dollar estimates of their costs.•Satisfactory measure of costs of crime, in terms of GDP lost because of it, has not yet been devised. However, the costs of crime prevention activities can be estimated with a fair degree of accuracy.INDIVIDUALLY AND COLLECTIVELY CONSUMED GOODS•Individually Consumed Goods and Services•Semi-collectively Consumed Goods and Services•Collectively Consumed Goods•The Free-Rider Problem•We will now discuss individually consumed goods and services; semi collectively consumed, and collectively consumed goods and services.•The concept of individually consumed goods and services is straightforward. It includes only those that directly add to the satisfaction of the person who consumes them. Much of what we consume is of this nature, such as hamburgers, suntan lotion, and pencils. These types of goods are considered to be exclusive in that once they are consumed by one person, they are unavailable for others to consume.•Semi collectively consumed goods and services yield identifiable satisfaction to the one who consumes them, but their consumption also leads to a change in satisfaction for other members of society.•Lastly, collectively consumed goods and services lie at the opposite extreme from those that are individually consumed; in this case, the individual is not able to isolate or identify a specific personal benefit from consumption. •When dealing with collectively consumed goods and services, the market tends to fail due to the natural tendency of some of the beneficiaries of the goods and services to be free-riders. A free-rider is an individual who consumes benefits from a collectively consumed good but who pays no part of its costs.THE ECONOMICS OF CRIME PREVENTION•What is the appropriate, or optimal, level of expenditures on crime prevention activities by governmental units in the United States? •The framework for such a problem is set up in the table shown on this slide.•Suppose the annual benefits and costs to society of crime prevention at various levels have been investigated thoroughly and the estimates have been recorded in columns one, two, and four. •A unit of crime prevention is a nebulous concept, a composite of police personnel, patrol cars, courthouses, judges’ services, prison costs, and the like. •We avoid the problem of defining physical units by using an arbitrary sixty-thousand dollar units of crime prevention, assuming that each sixty-thousand dollar chunk is spent in the best possible way.ALLOCATION OF THE CRIME PREVENTION BUDGET•Determining the effectiveness of prevention activities–Equi-marginal Principle–Last dollar spent in budget yields the same social benefits•Economic analysis also has something to contribute in determining the effectiveness of different facets of crime prevention activities.• The most efficient mix of the facets of crime prevention is determined logically by what economists call the equi-marginal principle.• The equi-marginal principle is defined as an efficient allocation of a budget when the last dollar spent on any one facet of the budget yields the same marginal social benefit as the last dollar spent on any other facet.CHANGING THE LEGAL STATUS OF GOODS AND SERVICES•Economists are in no position to offer much insight into the moral issues surrounding the legal status of goods and services. •Economic analysis can, however, provide valuable insights into the effects that changing the legal status of goods and services will have on the conditions of sale and use of the products.•Over the past few decades, the legal status of drugs such as marijuana and cocaine has come up for a great deal of public debate. •And in general, referendums during recent election cycles, the people of California, Arizona, and Washington, among others, voted in favor of allowing the medicinal use of some previously illegal drugs.•The figure above represents the demand and supply conditions for marijuana with its current illegal status. •Under this circumstance, the interaction of consumers and producers leads to an equilibrium price of P1 per ounce and an equilibrium quantity exchanged of M1 million ounces per year. •What can we expect to happen in this market if marijuana production, distribution, and use are all legalized? •On the demand side, we can expect to see some increase to a level as D2. As shown, the increase in demand is quite modest.•A recent survey of 7th through 12th graders indicates that 40 percent had tried marijuana and 60 percent reported marijuana to be easy to obtain. •The substance’s current widespread use would seem to confirm the supposition of only a modest increase in demand following legalization. •That is, apparently rather few individuals currently avoid using marijuana solely due to its illegality.CAUSES OF CRIMINAL ACTIVITY•Why do people cause crime?•A great deal of criminal activity has roots that are economic in nature, especially in cases such as trafficking in illegal substances•We will now look at why some people choose to participate in criminal activities. Clearly the reasons are nearly infinite, and many have little or nothing to do with economics. In many cases violent crimes are the result of unrestrained passions or emotions.•A great deal of criminal activity has roots that are economic in nature, especially in cases such as trafficking in illegal substances. For these types of criminal activities, economic analysis can offer important insights into the motivations of the individuals involved.•To see the value of economic analysis in understanding why people commit certain crimes, consider the supply side of the market for marijuana. Why do people grow marijuana even though they know it’s illegal? The answer is business. Marijuana is grown as a business venture, and as such the motivations to enter this business are much the same as those which exist for any other business, whether it is legal or illegal.•The fundamental reason why someone enters into a business is the pursuit of profit. But does the pursuit of profit as a motivation for entering a particular business necessarily conflict with other motivations, such as perhaps desiring to live and work in a beach community? Not necessarily. If we broaden our notion of income to include what is known as psychic income as well as money income, there is no conflict between these various motivations.•Please go to the next slide. We will now look at why some people choose to participate in criminal activities. Clearly the reasons are nearly infinite, and many have little or nothing to do with economics. In many cases violent crimes are the result of unrestrained passions or emotions.•A great deal of criminal activity has roots that are economic in nature, especially in cases such as trafficking in illegal substances. For these types of criminal activities, economic analysis can offer important insights into the motivations of the individuals involved.•To see the value of economic analysis in understanding why people commit certain crimes, consider the supply side of the market for marijuana. Why do people grow marijuana even though they know it’s illegal? The answer is business. Marijuana is grown as a business venture, and as such the motivations to enter this business are much the same as those which exist for any other business, whether it is legal or illegal.•The fundamental reason why someone enters into a business is the pursuit of profit. But does the pursuit of profit as a motivation for entering a particular business necessarily conflict with other motivations, such as perhaps desiring to live and work in a beach community? Not necessarily. If we broaden our notion of income to include what is known as psychic income as well as money income, there is no conflict between these various motivations.SUMMARY•What is Crime?•The Costs of Crime•Individually and Collectively consumed Goods•Changing the Legal Status of Goods and Services•First, we defined crime. A definition that seems to be meaningful and useful analytically is that a criminal act is one that society has decided it is better off without and which it has therefore made illegal through laws, ordinances, and the like. It may or may not be immoral.•Next, we discussed the costs of crime. Crime definitely has economic costs. The basis for measuring the cost of crime is the opportunity cost principle. The net economic cost of crime to the society is thus the difference between what the gross domestic products would be if there were neither criminal nor crime prevention activities and what GDP currently is, given present criminal and crime prevention activities.•Then, we learned about individually and collectively consumed goods. Individually consumed goods include only those that directly add to the satisfaction of the person who consumes them. Much of what we consume is of this nature, such as hamburgers, suntan lotion, and pencils. Semi collectively consumed goods and services yield identifiable satisfaction to the one who consumes them, but their consumption also leads to a change in satisfaction for other members of society. And Collectively consumed goods and services lie at the opposite extreme from those that are individually consumed; in this case, the individual is not able to isolate or identify a specific personal benefit from consumption.•Finally, we discussed changing the legal status of goods and services. Over the past few decades, the legal status of drugs such as marijuana and cocaine has come up for a great deal of public debate. And in general referendums during recent election cycles, the people of California, Arizona, and Washington, among others, voted in favor of allowing the medicinal use of some previously illegal drugs.
