week 12 Flashcards
common resources are
rival but non excludable
what is tragedy of commons
overuse of common resoures that creates an undesirable outcomes for society
why is there inefficient overuse of common resources?
B/c of negative externality of private use
no property rights assigned to common resource
common resources
what happens when town grows?
Why does overgrazing result?
conflict between social and private incentives due to a negative externality
describe how tragedy of commons occurs
what are solutions to tragedy of commons?
- qty regulation
- tax
- convert common property resource to private property
how can qty regulation help address tragedy of commons
Problem: too many sheep grazing
Solution: restrict number of sheep grazing in total or per farmer
how can tax address tragedy of commons
impose pigouvian tax or access fee to common resource
i.e. internalize externality
what is tragedy of commons
when individuals act independently according to their private incentives to enjoy the benefit of the common resource
each individual’s going is to maximise their private benefit from common resource BY using more of the common resource
they end up depleting shared resources, such as fisheries or pastureland.
even though individuals recognise the common resource is being exploited (may not be enough fish in the sea), why wont they stop using it?
someone else will use it and enjoy its benefit if they do not, so the individual will continue using it
e. g. even though i know sending too many cows will use up the land, i also know if i don’t use it, someone else will use it
e. g. in their interests to use as much as they can so they can maximise their profit in the present even though it may be detrimental to their business in the future
what is the unit labour costs
what is australia more efficient in?
Who has the absolute advantage?
Is australia more productive in one area?
what is the opportunity cost?
If australia has 15000 hours of labour, then what can australia produce up to?
what can foreign produce up to given they have 48000 hrs of labour
Given australia can produce up to 500 units of beef and 3000 of textile, show on PPC
show foreign opportunity cost of beef
what is the slope
Given foreign can produce up to 800 units of beef and 6000 of textile, show on PPC
show Aus opportunity cost of beef
what is the slope
since Opp cost of beef is 6 units of textile for AUS
and 7.5 for FOR,
what should they do?
what happens in this production change?
more is produced for everyone to consume via more efficient use of resources
World production possibilities curve
If australia can produce up to 500 beef and 3000 textile
Foreign can produce up to 800 beef and 6000 textile
what if A & foreign both specialise in textiles?
What is A & For both specialise in beef?
What is A Specialises in beef and F specialises in textile?
What is A specialises in textiles and F specialialises in beef?
World production possibilities curve
If australia can produce up to 500 beef and 3000 textile
Foreign can produce up to 800 beef and 6000 textile
what if A & foreign both specialise in textiles?
What is A & For both specialise in beef?
What is A Specialises in beef and F specialises in textile?
What is A specialises in textiles and F specialialises in beef?
Between A and B
Between B and C
show A, B, C and D on graph
wage costs & trade
what does competition guarantee?
goods produced wherever cheapest
Aus is lower cost producer for beef if
Aus is lower cost producer for textiles if
Show when might Australia be LCP and when might FOR be LCP
why is 1 and 3 rulled out?
show why I and III is ruled out
if 1 and 3 are ruled out, what is 2?
a high productivity country can
wage differences are ONLY limited by
Given equilibrium relative wages,
what happens in each case?
reasons for comparative advantage
- Climate
- Natural resources
- Technology, Human capital
- Capital - labour ratios
how can climate provide comparative advantage?
impact on agricultural production
tourism services
How can natural resources provide comparative advantage?
oil from OPEC
gold mining Australia
How can technology create comparative advantage?
wine production growth and exports in Australia
Australia is major manufacturer of high-speed ferries
how can capital-labour ratios create comparative advantage?
describe dynamic comparative advantage
comparative advantage changes over time due to investment in physical, human capital and in technology
Economic arguments for international trade
what is intra-industry trade?
why is there intraindustry trade?
