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Economics & Public Policies - Essay Example

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This research aims to evaluate and present the production possibility curve; basic assumptions underlying the production possibilities curve; Lindahl equilibrium; pollution abatement; break-even analysis; cost-benefit analysis of new road; dependency ratio and effective MTR…
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Economics & Public Policies
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Economics & Public Policies

The paper tells that the production possibilities curve represents the total output of the combination of two products in an economy provided the inputs and technology are available. There are 3 basic assumptions underlying the production possibilities curve: quantity and quality of all resources as inputs fixed; unchanged technology and fully employed resources. If the federal state and local governments in the U.S. engage in increased health-related expenditure, they would require increasing taxes to meet the increased costs. Assuming the fixed quantity of resources, i.e. public taxes and technology over a given time period, the U.S. is capable of providing limited amount of public health care services. This also depends upon how much the taxpayers are willing to sacrifice other goods and services for increased public health service. The production possibilities curve shows that increase in health care services will lead to less of other government public services due to its limited resources. Therefore, the production of other goods and services will be less. As the quantity of health care services is reduced, the government will be able to provide more of other goods and services. The probable production possibilities curve is provided in the study. When each member of the community makes a voluntary contribution towards per unit of a pure public good, that contribution equals to his/her marginal benefit derived from the public good at efficient level of output. This equilibrium contribution per unit is known as Lindahl price. The Lindahl prices are assigned in such a manner that no budget deficit or surplus arise at the efficient output of the good. Lindahl equilibrium requires that the total contribution by the community towards the public good is equal to the Marginal Social Benefit and total cost of producing that public good (Hyman, 2010, p.165). This means that ?Ti*Q = MC*Q = AC*Q Where Ti is the voluntary contribution by each individual; Q is the efficient output; MC is the Marginal Cost of pure public good; AC is the Average Cost of pure public good; Therefore, the total contribution or revenue collected will be (?Ti*Q) and it should be equal to the total cost of the production, i.e. AC*Q. MC*Q equal to AC*Q implies there is no budget surplus or deficit. However, assuming that marginal cost of pure public good increases if more is purchased by the community, i.e. MC>AC then ?MBi>AC because MC = ?MBi. Therefore, the sum of per unit voluntary contribution becomes more than the average costs of production and so this will result in budget surplus at the efficient annual output. Answer 3: Pollution Abatement There are very few human activities that do not pollute the environment, and it has become imperative to address the global concerns over the environmental degradation. The objective of a hundred percent pollution abatement cannot be achieved because the regulators do not have the information of the pollution’s marginal external costs and marginal costs of abatement (Grafton, 2004, p.63). Therefore, most of the pollution abatement policies aim to ensure that the pollution control methods are cost-effective. The costs of pollution abatement not only consider the marginal social costs, but also the opportunity costs associated with cleaner environment. ... Read More
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