Subject: Economics

Name: Hosen Md Emran

Student ID: L202320028
Department: School of Economics and
Management
Major: Management Science and Engineering
(Master’s program 2023)

Course Teacher: Zhang Jianguang, Xiongfeng

School of Economics and Management
 Question for review 1, 5, and 7

Give three examples of trade off that you face in your life?

Personal trade-offs are common in daily life, involving decisions where one choice entails
sacrificing another. Here are three examples:

1.Time Allocation:
Trade-Off: Spending more time at work to meet deadlines and advance career goals may lead to
less leisure or family time.
Consideration: Balancing professional commitments with personal and family life involves
trade-offs in time allocation and priorities.

2.Financial Choices:
Trade-Off: Choosing to save money for future goals may mean sacrificing immediate
indulgences or luxury purchases.
Consideration: Making financial trade-offs involves deciding between short-term gratification
and long-term financial security or goals.

3.Health and Lifestyle:

Trade-Off: Opting for a demanding job or lifestyle may result in less time for regular exercise
and a healthy diet.
Consideration: Balancing career aspirations with health priorities involves trade-offs in lifestyle
choices and their impact on overall well-being.
These examples illustrate how individuals often navigate decisions that require weighing
different priorities and making choices that involve giving up one option for the sake of another.
The challenge is to find a balance that aligns with personal values and goals.
 What isn’t trade among countries like a game with some winners and some losers?

Contrary to the notion of a game where there are clear winners and losers, international trade is
generally perceived as a positive-sum activity, meaning that all participating countries have the
potential to benefit. Here's why international trade differs from a competitive game:

1. Mutual Gains:
In international trade, the goal is not for one country to "win" at the expense of others. Instead,
countries engage in trade to mutually benefit from their comparative advantages. Each country
specializes in producing goods and services where it has a relative efficiency, leading to overall
economic growth.

2. Economic Interdependence:
The global economy is interconnected, and nations are interdependent. Economic success in one
country can positively impact its trading partners, contributing to stability and prosperity.
Conversely, economic challenges in one country can have repercussions, emphasizing the shared
interests among nations.

3. Efficiency and Specialization:

International trade allows countries to specialize in producing what they can efficiently and
effectively manufacture. This specialization leads to increased efficiency, lower production
costs, and a more diverse range of goods and services for all trading partners.

4. Resource Allocation:
Through trade, countries can access resources and commodities that may be scarce or
unavailable domestically. This facilitates the efficient allocation of resources globally, benefiting
each country by allowing them to focus on what they do best.

While certain industries or sectors within a country may face challenges due to international
competition, the overall framework of international trade is designed to foster collaboration and
shared prosperity. Trade agreements and negotiations often aim to create a framework where
each participating country can experience economic growth without one country necessarily
being the "winner" or "loser" in a zero-sum context.
 Explain two main causes of market failure?
Market failure occurs when the allocation of goods and services in a free market is inefficient
and fails to meet the criteria for an ideal market. Two main causes of market failure are:

1. Externalities:
Externalities are the unintended side effects of economic activities that affect third parties who
are not directly involved in the transaction. Positive externalities occur when the benefits spill
over to others, and negative externalities occur when the costs affect others. In the absence of
government intervention or corrective measures, the market may not account for these external
effects, leading to an inefficient allocation of resources. For instance, pollution from a factory
may impose health costs on the surrounding community, which are not considered in the market
transaction.

2. Public Goods:
Public goods possess two key characteristics: non-excludability and non-rivalry. Non-
excludability means that it is difficult to exclude individuals from enjoying the benefits of the
good, and non-rivalry means that one person's consumption of the good does not reduce its
availability to others. Because individuals can benefit from public goods without paying for them
(free-rider problem), there is a tendency for the private market to under-produce these goods.
The market may fail to provide an optimal quantity of public goods, such as national defense or
clean air, leading to an inefficient allocation of resources.

Market failures can lead to outcomes where resources are misallocated, and societal welfare is
not maximized. In such cases, interventions such as government regulations, taxes, subsidies, or
the provision of public goods may be necessary to correct these inefficiencies and improve
overall economic welfare.

ANSWERS OF APPLICATION AND PROBLEMS 2, 6, 9, 13, 16

2 NO QUESTION ANSWER:
To assess the psychological advantages of a vacation in relation to its monetary expenses, you
can employ a subjective approach. Follow this simplified process:

Identify potential psychological benefits, such as relaxation, stress reduction, enhanced mental
well-being, novel experiences, and quality time with loved ones.
Attribute subjective values or scores to these benefits on a scale (e.g., 1 to 10), with 10
representing the highest level of benefit.

Calculate the anticipated total psychological benefit score derived from the vacation.

Determine the total monetary cost, encompassing airfare, accommodation, and any foregone
wages.

Compare the overall psychological benefit score with the total monetary cost. If the benefit score
notably exceeds the cost, it may indicate a favorable decision to take the vacation.

Acknowledge that this method is subjective, dependent on personal preferences, and recommend
considering additional factors like financial status, time constraints, and responsibilities before
reaching a decision.

6 NO QUESTION ANSWER:

A. The availability of Social Security may potentially diminish individuals' motivation to save
during their working years, as they might view Social Security benefits as a primary retirement
income source. This could result in a decline in personal savings, as the perceived necessity to
save for retirement diminishes when relying on Social Security. Nevertheless, certain individuals
may still opt to save for added financial security or to sustain a higher quality of life in
retirement.

B. The decrease in Social Security benefits linked to higher earnings can impact individuals'
inclination to continue working beyond the age of 65. This reduction creates a financial
disincentive for those considering prolonged employment, as it may be perceived as a loss of
potential income. Some may opt for early retirement to avoid this benefit reduction, while others
might persist in employment if they find their work fulfilling or crucial for covering living
expenses. Notably, recent policy adjustments have aimed to mitigate the reduction in benefits for
those working past their full retirement age, potentially influencing individuals' decisions on
when to retire.

9 NO QUESTION ANSWER:
A. Regulating cable TV prices: This measure is prompted by concerns over efficiency,
specifically targeting the market failure associated with natural monopolies. It addresses the
situation where a single company can provide cable TV services more efficiently than
multiple competitors, aiming to prevent monopolistic pricing practices that could adversely
affect consumers.

B. Providing food vouchers for low-income individuals: Driven by a commitment to equality,

this approach involves redistributing income to support those with limited financial means in
purchasing essential goods like food, contributing to the reduction of income inequality.

C. Prohibiting smoking in public places: Motivated by both equality and efficiency

considerations, this action aims to ensure equality by protecting non-smokers from the health
hazards of secondhand smoke. It is also viewed as an efficiency measure, reducing healthcare
costs associated with smoking-related illnesses.

D. Breaking up Standard Oil into smaller companies: Primarily motivated by concerns about
efficiency, the decision to dismantle Standard Oil targets anti-competitive practices and
market inefficiencies arising from its dominance. The breakup seeks to restore competition
and improve overall market efficiency.

E. Imposing higher personal income tax rates on higher incomes: Driven by concerns about
both efficiency and equality, this strategy aids in financing government programs and
services from an efficiency perspective. Simultaneously, it serves as a form of progressive
taxation, aiming to reduce income inequality by having wealthier individuals contribute more
to public finances.

F. Instituting laws against driving while intoxicated: Primarily motivated by concerns about
efficiency and public safety, these laws aim to prevent accidents, reduce injuries, and
maintain the efficient operation of transportation systems by addressing the risks associated
with driving while intoxicated.

13 NO QUESTION ANSWER:

The objectives of enhancing health insurance coverage for more Americans and lowering
healthcare costs in the 2010 healthcare reform bill are connected to both equality and efficiency
in the following ways:
1. Equality:
 Providing subsidies for lower-income households serves to advance equality by
enhancing the accessibility and affordability of healthcare for individuals and families
previously unable to afford insurance or medical care.

 Financing these subsidies through taxes on higher-income households is viewed as a

method of income redistribution, aiming to diminish economic disparities in healthcare
access.

2. Efficiency:

 Augmenting the number of insured Americans can contribute to a more efficient

healthcare system by lessening the burden of uncompensated care on hospitals and
providers. Increased insurance coverage improves the likelihood of healthcare providers
receiving payment for their services, thereby reducing the necessity for cost-shifting.

 The reforms targeting healthcare cost reduction can enhance efficiency by addressing
issues such as over-utilization, administrative overhead, and unnecessary procedures,
which can inflate healthcare costs.

Although, it's crucial to recognize that achieving both equality and efficiency in healthcare poses
a multifaceted challenge, with potential trade-offs between these goals. Some measures aimed at
cost savings may have repercussions on access and quality of care, potentially affecting equality.
Striking a balance necessitates meticulous policy design and implementation.

16 NO QUESTION ANSWER:

Financing the construction of a new airport through tax increases and printing more money
entails both short-run and long-run consequences:

Tax Increases:
Immediate and Prolonged Effects:
 Immediate Funding: Tax hikes provide an immediate and direct funding source for the
construction of the airport.
 Economic Impact: Elevated taxes can diminish disposable income, potentially resulting
in decreased consumer spending and a temporary slowdown in economic growth.
  Political Implications: Implementing tax increases might face political resistance due to
potential unpopularity, leading to backlash from the public.

Long-term Ramifications:
 Economic Stability: Over the long term, a consistent and sustainable revenue source
from taxes contributes to improved economic stability.
 Fiscal Responsibility: Adhering to responsible fiscal policies fosters trust in the
government's financial management and decision-making.
 Persisting Tax Burden: Citizens may continue to experience a lasting impact of
higher taxes, affecting their savings and investments over an extended period.

Monetary Expansion (Printing More Money):

Short-term and Long-term Outcomes:
 Prompt Funding: The act of printing money promptly supplies the required funds for
the airport project.
 Inflationary Hazard: An augmented money supply poses a risk of inflation,
potentially diminishing purchasing power and adversely impacting the economy.
 Currency Depreciation: The international value of the national currency may
diminish, influencing trade dynamics.
 Inflationary Consequences: Continuous money printing can lead to substantial and
potentially hyperinflation, resulting in economic instability.
 Erosion of Confidence: Excessive money printing has the potential to undermine
public confidence in the currency and the government's economic management
capabilities.
 Economic Uncertainty: A tumultuous economic environment may discourage
investment and impede long-term economic growth.

In conclusion, while financing through tax increases is generally regarded as a more stable and
responsible choice in both the short and long term, avoiding the risks associated with inflation
and currency, printing more money offers immediate funding but introduces risks of inflation
and long-term economic instability if not carefully managed. Policymakers should thoroughly
weigh the trade-offs and potential consequences before reaching a decision.