Chapter 15: Monopoly
Question 1: explain how the following industries practice price discrimination: movie theaters.
Different price is charge to different age range. Price is based to the buyers’ age whether they are a student, adult or elderly, most adult receives regular admission price while students and elderly receives discount, this is because students and elderly are less likely not able to afford the full-price of a movie ticket as they may not have income. Thus, this pricing strategy is used among the movie theaters. Moreover, the price of the movie tickets varies on the time of purchase, movie theater may charge less price in the morning/afternoon and charge more in the popular time such as evening or Fridays.
Question 2: explain how the following industries practices price discrimination: airlines.
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(Hints: Graph the market failure and explain the problem. Then show how the government action will change the situation.) Without Government Intervention The air pollution imposes a cost on people who breathe in the air because the increase in air pollution will affect the health of the people.In the presence of the pollution, the social cost of the pollution exceeds the private cost.due to negative externality the social cost curve is above the supply curve, in which the vertical distance between the curve of private cost and the social cost is the external cost.In the graph it can be seen that the optimal quantity is smaller than the market quantity, where QMKT is the free-market and OOpt is the efficient output, Thus, there is a welfare loss(A, B, C)
In order to improve economic efficiency, the government can consider imposing green tax on drivers and factories to reduce the pollution that is being emitted. In the graph the supply curve(private cost) will shift to the left resulting in the market equilibrium equals to the social
Choose one of the three types of market failure and give a real world example of it. Do you believe the government has the ability to solve this problem?
Specifically, in the presence of negative externalities, a Pigovian Tax can be utilized to correct the externalities and produce an efficient outcome. In regards to hydraulic fracking, a Pigovian Tax can be applied to the quantity of gas pumped daily during the process of shale fracking. A Pigovian Tax would incentivize producers to reduce the quantity of gas pumped daily as well as generate revenue that can be used to offset the negative effects of hydraulic fracking in communities. Exemplified by Graph 4, the Marginal Private Cost endured by the firms would be shifted upwards by the amount of the tax to the point of Marginal Private Cost + Tax. Due to this increased cost, producers would have the incentive to diminish daily output of gas to the socially optimum level of QS, which considers the Marginal Social Cost as well. The level of the tax would equal the external damage at the quantity produced, which is represented by the difference between Marginal Social Cost and Marginal Private Cost at the point they both cross the Marginal Private Benefit. Therefore, the total tax revenue is represented by the light purple area. By utilizing a tax, it offers an economic incentive to hydraulic fracking firms to reduce production levels as well as compensate communities with the tax revenue. However, the Pigovian Tax would only apply to gas pumped from the process of shale fracking in order to address the specific negative externalities that arise during hydraulic fracking. Additionally, the tax revenue collected can be distributed back to the communities
When the stock market crashed in October 1929, the nation plummeted into a major depression. An economic catastrophe of major proportions had been building for years. The worldwide demand for
3. Pollution is considered by most a negative externality. Some economists would like to see the costs of these burdens incorporated into the price of goods that we buy. For instance, since coal fire power plants increase emissions that could potentially lead to climate change, these economists believe that the price we pay for electricity is not adequately high enough. Draw a completely labeled graph and illustrate on the graph how much higher electricity prices would be if the full costs of electricity production were taken into account. You do not need to provide actual numbers; rather, show on the
In the late 1800s the farmers believed that the railroad companies were constricting their profits away, and the government was in favor which is what gave them the reason for discontent. The farmers had plenty of reasons to be angry/upset about that situation because the government saw a need for reform which alludes the fact that their were problems: Monopoly on railroads caused a raise in cost, deflated value of crops, and farmers weren’t treated in a friendly way by big business.
1. On Market Failure – We said that the rationale for public policy is either market failure and/or government failure. Address the following with this rationale in mind:
Cody Burk’s cleats sank into the thick, black mud as he watched the center place his muck-covered fingers along the while laces as he gripped the ball. The Morrisonville Quarterback looked across the line and knew the five-foot-seven inch linebacker would blitz as soon as he called “hike.” It wasn’t that Cody was bigger than the rest of the players on the brown and black stained fields at Hawk Hallow Middle School. He was average height, average weight, but Cody Burk was probably the most athletic kid on either side of the ball. But that wasn’t what scared the Morrisonville Quarterback. It was the look on Cody’s face. It was something he’d never seen. In that one glance, the Quarterback truly believed that Cody was going to hurt him. That’s
Every person is qualified to receive human rights, including the right to life, liberty, and security under Section 7 of the Charter of Rights and Freedoms. There is a wide range of human rights and not every state/province can guarantee that there will be no violations against these rights. The principle of human rights declared that people need human rights, from the time that they are born no matter where they live. For instance, “Canadian mining corporations operating abroad, represent a challenge to international and Canadian legal human rights protection. Over 1,000 Canadian mining companies operate in more than 100 countries, making it difficult to effectively regulate corporations without violating each country’s sovereignty”. Canadian
As seen from both Figure 2 and Figure 3, the application of negative externality of consumption is appropriate, as it clearly indicates the before and after results of the implementation of the tax. As clearly shown, overconsumption leads to social inefficiency, but by applying a tax, a decrease in the consumption of plastic bags can allow for a shift of the market. The increase in social efficiency also allows for social cost and benefit to be equal. By applying taxes on the plastic bag negative externality it allows for a reduction in the supply of plastic bags. Due to this tax, the supply curve S1 will shift upwards to S2. This will inherently also reduce the gap between Qefficient and
A solution to this inefficiency is direct regulation whereby the government tells the company how much it is allowed to pollute. This is known as a pollution permit – the Government give out the legal right to admit carbon to the atmosphere. Another solution is known as the command and control strategy – whereby detailed regulation of technology leaves polluters little choice in how to achieve the environmental goals. One other policy which is seen to be the most efficient, is imposing emission fees known by economists as a Pigovian tax. Under a system of Pigovian taxes, the government charges for the damage done by polluting. By doing so it converts the external cost into an internal cost (internalizes the externality). According to the article “Equilibrium Pollution and Economic Development in China” there is one such levy system in place whereby it formally requires that a fee be paid by any enterprise whose effluent charge exceeds the legal standard. This has been proven in the article to be an effective way of regulating pollution. This implementation of the tax can be shown in the diagram below.
Carbon taxing coal-based products, in a revenue-neutral way, will help discourage overuse of fossil fuels. The United States needs to reduce carbon emissions in order to avoid the costs that pollution and climate change inflict on the general economy and individuals. Carbon, unlike other commodities exchanged and consumed in the free market, bears unique costs to the general economy that its market price does not encompass. The pollution we create when we consume carbon contaminates our air, raises temperatures, and makes severe weather events more frequent. A carbon tax is an economic mechanism that forces actors in a free market to come face-to-face with the social cost of
In Australia, there is an emerging consensus that the government should take further actions to help mitigate and combat climate change. The current most accepted policy by government is the introduction of a carbon tax followed by an ETS in 2015. However we are focusing on the carbon tax in this essay and not the ETS. Here is a brief explanation of the dynamics of a carbon tax. A carbon tax is a tax on energy sources, which emit carbon dioxide (Co2). Therefore, carbon taxes address the problem of negative externality. Externalities are the subsequent effects when individual production or consumption of a particular good or service imposes costs or benefits on others. Therefore negative externalities are effects, which pose harm to others without their direct interaction (Basic Economics 2011). However, usual market practices and transactions do not reflect these cost and benefits in the prices involved in the transaction, or take into account in their transaction decision. Therefore this is a form of market failure. By imposing a cost on these negative externalities, the hidden cost can be addressed. Ultimately the purpose of a carbon tax is to reduce emissions of carbon dioxide and therefore reduce
“Price discrimination exists when two similar products which have the same marginal cost to produce are sold by a firm at different prices. This sort of practice is highly controversial in terms of its impact on both consumers and rivals” (Price Discrimination, 2006, p.1). There are many ways to accomplish these sort of conditions because the transactions surely need not be simultaneous; indeed, there is temporal discrimination, such as between Sunday rates and week, day rates, matinee and evening prices, peak rates and off-peak rates, season and off-season prices. To sell different qualities or products with different marginal cost at the same price, or to buy different qualities or factors of different efficiency at the same price, is also discriminatory.
As the negative externalities appear, tax can apply. As the graph shown, people maximize their welfare where PMB = PMC. By applying the tax of P0 -P2, the supply curve shifts to SMC and price rises from P1 to P2, People will now consume less, as the quantity decreases from Q* to Q**, the negative surplus (shaded area) will decrease, thus, the social well-being increases.
It is believed that certain drugs have an impact on users that make them want to continue to use and try harder drugs. There is said to be an order to which people use drugs because of the gateway drug theory. People think that most adolescents usually start out with alcohol or tobacco which is then a gateway to trying illegal drugs, such as marijuana, that causes them to then try a harsher drug like heroin or cocaine. In the article, it states how many people agree that “in vulnerable individuals, particularly teenagers, some drugs are likely to be a way to future addiction because the drugs play such a role in the adolescent’s development” (Gateway 429). This article shows that people think there is a connection between adolescents using alcohol, cigarettes, and marijuana that makes them take the risk of moving onto cocaine and other illegal drugs. This is not true and there is no order in which teenagers begin to use drugs that will automatically compel them to attempt harsher drugs. An individual is highly likely to seek harder drugs because of certain factors in their life, not due to the impact of the drug on them. These factors could include stress in school where the student is pushed to maintain a good GPA. They could also be in a situation of peer pressure among their friends, where everyone around them is trying and using drugs so they feel the need to keep up with the social standard of belonging in the group. Another one could be the living situation of the