The market: Scenario 1: A genie ask a businessman to make three wishes Wish one:
ID: 1102888 • Letter: T
Question
The market:
Scenario 1: A genie ask a businessman to make three wishes
Wish one: I wish to have ten billion tons of gold. The genie responds by saying the price of gold has collapsed rendering your gold worthless.
Wish 2: I wish prices weren’t inversely related to supply. The genie responds by saying price now scales with supply, your gold is more expensive, but not nearly as expensive as common commodities like wheat and ice. Air now cost one hundred trillion dollars per breath.
Wish 3: I wish I could afford to breathe. The genie responds by saying everyone else will be dead within two minutes.
Use the theory of the market to explain the impact of the three wishes.
Scenario: Bay of Bengal: depleted fish stocks
The Bay of Bengal’s basin contains some of the most populous regions of the earth. No less than a quarter of the world’s population is concentrated in the eight countries that border the bay. Approximately 200 million people live along the Bay of Bengal’s coasts and of these a major proportion are partially or wholly dependent on its fisheries.
The fisheries of the Bay of Bengal have been under pressure for decades and are now severely depleted. Many once-abundant species have all but disappeared. Catches now consist mainly of species like sardines, which are at the bottom of the marine food web. Attempts have been made to regulate fishing in the bay but they have been largely ineffective. In 2015 Sri Lankan authorities claimed to have spotted 40,544 Indian trawlers in Sri Lanka’s territorial waters. Conversely, many Sri Lankan tuna fishermen have also been arrested in India. In Myanmar, until a ban was enacted in 2014, the catch collected by foreign fishing boats was 100 times greater than that of local fishermen.
At night specially equipped, long-armed boats materialize around the islands and shine high-powered green lights into the water to attract plankton and the squid that follow in their wake
(a) Based on economic theory, suggest TWO possible solutions to the market failure identified in the scenario.
(b) Do you think these solutions would solve the problem of the depleted fish stocks in the Bay of Bengal? Explain.
Explanation / Answer
1) Assignment of property rights and free trading once property right has been assigned. Cosian bargaining.
2) Permits for fishing.
b) Yes , because the problem arises because of absence of market. Once market has been created stakeholders with property rights will trade and this would lead to efficient outcomes.
With permits equimarginal principle will hold . Thus it set the fisherman to choose optimum level of fish.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.