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the question is in the attachment
Answered Same DayDec 20, 2021

Solution

Robert answered on Dec 20 2021
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Solution 1
(i)
Biodiversity is the variety of life in a particular region. It includes all species of plants and animals, marine or te
estrial, which are a part of an ecosystem. More is the number of species; richer is the biodiversity of a region. Thus biodiversity can also be refe
ed to as “Species Diversity”. A healthy growth of biodiversity requires coexistence of varied species.
Benefits of preserving Biodiversity
Biodiversity sustains human life both directly and indirectly. It is expected to have both positive and negative effects on human health. The loss of biodiversity due to global warming or deforestations distu
s the ecosystem. While the human race is expanding, a number of species will become extinct or endangered. This lopsided growth will affect the quality of life of the new generations
Costs of preserving Biodiversity
The ecosystem serves the human race by providing for their needs for food, oxygen, shelter, fiber, medicines and even a means of earning. To preserve the biodiversity of a region, the balance of the ecosystem should be sustained. In order to maintain the balance of the ecosystem, the human activities distu
ing this balance needs to be regulated. These regulations will reduce the productive value of lands rich in biodiversity as they cannot be cleared for agricultural or industrial purposes. Thus the optimal allocation of these land resources is being prevented. Thus the cost of preserving biodiversity is the sacrifice made in terms of loss in efficiency.
(ii) Inequality and concentration of wealth is considered to be the most serious economic cause of the loss of biodiversity. The species are endangered in the developed world due to economic growth which has led to exhaustion of natural resources beyond the replaceable capacity of the ecosystem while in the developing world; the species are endangered due to unequal income distribution and population growth.
Solution 2
Following are the characteristics of a perfectly competitive market:
Large number of buyers and sellers: An individual buyer or seller has no power to affect market variables as he has negligible share in the market demand or supply. For example the market for Wheat or rice will have large number of sellers as well buyers (if the farmers are also the sellers).
Free entry and exit: There are no ba
iers to enter the market for a new firm or to abandon the market for an existing firm. A market which does not have this provision would be telecommunication sector as due to sensitivity issues, government’s license is generally required to enter such an industry.
Price takers: Firms of a competitive market are price takers, i.e. they accept the market price as the price of their own good. A market which does not have this provision would be market for automobiles. In the Automobile industry, firms will have their own pricing strategy as they can be differentiate their goods from that of the competitors on the basis of
and name, features, physical attributes, mileage and performance etc. Thus the goods of different firms are not perfect substitutes of each other.
Normal profits: an implication of free entry and exit is that all the firms under perfect competition will earn only normal profits in the long run. Cars market is an example of a market where this provision does not apply.
Homogeneous goods: All the firms under perfect competition are selling homogeneous goods which are perfect substitutes of each other. This can be observed in all markets of food grains, spices, sugarcane etc.
Solution 3
Farm incomes have always remained relatively low in the past. The agricultural laborers have remained under paid and overworked. While the gross farm incomes have increased over the years, the net farm incomes (gross farm income - cost) still remains low. Excess supply has resulted in low pricing. Through the support pricing policy of the government the farm incomes have been stabilized to some extend and the farmers are also making some profits at the same time. The market demand is likely to fall with the support price policy of the government. The farmers have the option of selling the excess supply to the government at the support prices. In the diagram below as the price set up by the government is above the market determined price level there will excess supply of farm goods. This excess supply will be sold to the government at the support price.
Solution 4
(i)
Tragedy of commons is a problem of the damage caused to the community due to selfishness of a few people.
An example of global commons similar to the problem of tragedy of commons can be the problem of overfishing from the oceans in various parts of the world. Overfishing is a global environmental problem today. The main cause behind this is Overfishing by some ambitious fishermen at a level beyond the replaceable capacity of the oceans. In a publication, by the FAO scientists, it was stated that about 52% of the fish stock of the world’s oceans have been totally exhausted. Such a depletion of the fish resources is distu
ing the balance of the ecosystem and is endangering the marine life. It is likely to have adverse long term consequences for all. The fish industry, which is thriving on the immense capacity of the oceans, has been giving a source of income to millions. But it is soon going to face pressure of rise in cost of fishing as the easily accessible waters are becoming lifeless at an unimaginable pace. Thus a number of fish species will soon become economically unviable which will give a setback to the fishing industry and people employed in the industry will be left jobless. The loss to biodiversity due to overfishing will give a setback to sustainable development of the community.
(ii) The governments around the globe need to regulate and implement fishing laws and restore the depleting species. International rules regarding the catch share for each fisherman should be determined so that the fishermen know what will be considered illegal and punishable.
The United Nations Convention on the Law of the Sea (UNCLOS) has laid down rules and responsibilities for the nations worldwide regarding the management of marine resources. Till now about 162 countries have ratified for UNCLOS III. Besides the international laws, almost all the fishing nations have departments to manage and implement Fisheries laws. The Department of Agriculture, Fisheries and Forestry of the Australian government looks after the management of the fishing zone of the commonwealth which is the world’s third largest fishing zone.
Solution to Question 5
(a)Malthus argues that human beings have a natural desire to reproduce in large numbers. Thus the world’s population is expected to increase continuously with time but the food resources cannot be increased at the same pace. The per person share in food resources is going to come down explicitly in the coming generations leading to increase in the incidence of malnutrition and starvation.
(b)Over the years the yield of food grains has stagnated. Though there is overall increase in the grain production due to green revolution, the per capita yield is falling continuously. The world’s population grew slowly till the 19th century but now it is growing at a rate of 1.7% annually. The world’s population is expected to double by 2050.
(c)The farm sector has na
owed over the years with shift of employment to the secondary and service sector. Unfavorable weather conditions, floods, droughts, soil depletion etc. have been some reasons behind global food crisis.
The population explosion is mainly due to the high growth rates among the countries of the developing world. Also the age distribution of the present generation suggests that the number of young men and women is rising continuously and the life expectancy has increased globally specially in the developing countries.
Solution to Question 6
In a perfectly competitive market, firms are price takers and there is free entry and exit from the market. Due to these reasons the firms can maximize their revenues only when they sell their produce at the market price. Market price is set taking into consideration the normal profits which a firm should earn. If a firm will set its price above the market price, then it will lose its customers as they will shift their demands to other firms selling the same goods at a lower price. It is assumed that customers have complete information about the sellers and their prices. It is also assumed that there is no transportation cost involved. All the firms are selling homogenous goods. Thus the consumers will maximize their benefits by buying from the seller who offers the most reasonable prices. Firms on the other hand cannot survive by undercutting prices or by charging over and above the market price. Thus it will be optimal for them to sell any quantity at the market price. The diagram below shows that an individual firm under perfect competition will produce Q0 level of output where its marginal cost (MC) is equal to Marginal Revenue (MR). At this level the firm will earn only normal profits.
Solution to Question 7
(i)
Market mechanism results in optimal allocation of private goods because there is a market of every private good where it can be bought and sold for a price. The same is not true for externality goods because there is no market for them. Thus the market mechanism fails to determine the optimal production of goods in the case of externality.
Externalities are the benefits or cost accruing to individuals, groups or the society due to the consumption activity of others. The creator of externality does not take into consideration this cost or benefits accruing to others. These cost or benefits should also be taken into account to determine the socially optimal levels of goods which generate externality. The diagram below shows that there is a tradeoff between marginal benefit (MB) of the firm and the social welfare. The producer would like to produce Q1 level of output where the entire marginal benefit is exhausted whereas the society will prefer Q2 level of output where social cost is nil. If both the parties negotiates then Q0 will the determined as the socially optimal level of output where
MB = MC.
(ii) Pigou has given the Tax- Benefit policy by which the government can regulate the production of externality generating goods. According to...
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