Microsoft Word - Week 6 Assignment Guides.docx
BUS 310 – Week 6 DQ and PA2 Guide
Week 2 DQ:
1-From a firm’s point of view, how is a bond similar to a bank loan? How are they different?
2-What are some reasons why the investment strategy of a 30-year-old might differ from the
investment strategy of a 65-year-old?
3-Why is it hard to forecast future movements in stock prices?
Thoughts for responding:
• All the answers can be found in Chapter 17 of our textbook. You can also use other
esources. Please review the chapter comprehensively.
• Don’t wo
y if you get the wrong answer; this is a discussion, so you will learn more
from your classmates’ responses.
• Note: You will not see your classmates’ posts yet until you respond to my DQ post.
• A good response to your classmates would be as follows:
o If the answer is wrong, point out (in a respectful way) what went wrong, and
how do you think it can be co
ected.
o If the answer is co
ect, don’t just praise your classmate! A praise is good, but
you need to create a more comprehensive response to further the discussion.
For this DQ, I suggest you discuss other issues and things about financial markets
in the US.
PA2
Guide: Make sure to read section 12.6 of Chapter 12 before answering.
There is a “Self Check” question on the textbook that is similar to this question, it can be found
in the “Self Check Questions” section of Chapter 12, and you can find the answer key at the end
of the textbook. In the textbook, you can find the similar question in page 296, and the answer
key on page 545.
Answer key:
Again, these are not the answers to your actual PA, but just a guide on how to answer it.
Hint: Remember, Equili
ium means Quantity Demanded = Quantity Supplied, so identify the
equili
ium price and quantity without paying and after paying the cost of pollution. State what
happens to the equili
ium price and quantity if the firm pays the cost of pollution. You can also
draw the demand and supply diagram, but that is optional.
• Make sure to submit your activity in a word or pdf file. Please read the Course Policies
(available in GAP) to learn more about the expectations for activities and assignments.
Format for Written Assignments
The following are formatting guidelines, which are expected to be used for each written
assignment:
1. APA style formatting is required for each written assignment. Please use the APA 7th
edition. An updated copy of the APA changes and a sample of an APA paper can be
found in the General Course Forums of the course Global Academic Portal (GAP), as well
as the Writing Center.
a. All papers are to consist of original composition, double spaced, 12 -point type
font in Times New Roman (although with 7 th edition, Cali
i 11-pt, Arial, 11-pt,
Lucinda Sans Unicode 10-pt, Georgia 11-pt, and normal Computer Modern 10-pt
are now allowed). The page length requirement does not include the title page,
abstract, or reference pages.
2. Papers should begin with an introduction and should end with a conclusion.
3. The body of the paper must include citations according to the 7 th edition APA style
format.
4. Every assignment should contain the minimum number and type of references as
identified in the syllabus. For example, PA 1 assignments generally require a minimum
of 2 peer-reviewed references, the CLA 1 a minimum of 3, and the CLA 2 a minimum of
4
1. Week 6
Professional Assignment 2 – CLO 5, CLO 6
Please explain the concept of negative externality and answer the following questions.
1. In the Land of Purity, there is only one form of pollution, called “gunk.” Table 12-18 shows possible combinations of economic output and reduction of gunk, depending on what kinds of environmental regulations are chosen.
Combos
Eco Output
Gunk Cleaned Up
J
800
10%
K
500
30%
L
600
40%
M
400
40%
N
100
90%
a. Sketch a graph of a production possibility frontier with environmental quality on the horizontal axis, measured by the percentage reduction of gunk, and with the quantity of economic output on the vertical axis.
. Which choices display productive efficiency? How can you tell?
c. Which choices show allocative efficiency? How can you tell?
d. In the choice between K and L, can you say which one is better and why?
e. In the choice between K and N, can you say which one is better, and why?
f. If you had to guess, which choice would you think is more likely to represent a command-and-control environmental policy and which choice is more likely to represent a market-oriented environmental policy, choice L or M? Why?
2. The supply and demand conditions for a manufacturing firm are given in Table 12_04. The third column represents a supply curve without taking the social cost of pollution into account. The fourth column represents the supply curve when the firm is required to take the social cost of pollution into account. Identify the equili
ium before the social cost of production is included and after the social cost of production is included.
Price
Quantity Demanded
Quantity supplied without paying the cost of pollution
Quantity supplied after paying the cost of pollution
$10
450
400
250
$15
440
440
290
$20
430
480
330
$25
420
520
370
$30
410
560
410
Concepts of Microeconomics
BUS 310
Week 6
Westcliff University
Professor Baldovino
Today’s Agenda
uReview Elements of Chapters 12 and
17
uIn class activities
uQuestions
uDQs and Assignments
Environmental
Economics and
Financial Markets
Week 6
Last Week
u Monopoly
u Ba
iers to Entry
u Profit Maximization: MR = MC
u Monopolistic Competition
u Oligopoly
u Game Theory, Prisoner’s Dilemma and Nash Equili
ium
Search these terms!
u Before we start, search for the definition of the term that will be
assigned to you and state the definition when you are called:
u Externalities
u Command-and-Control Regulation
u Marketable Permits
u Bond
u Initial Public Offering
u Liquidity
u Random Walk Theory
Environmental Debate
u Across the country, countless people have protested, even
isking a
est, against the Keystone XL Pipeline.
u (Credit: modification of image by “NoKXL”/Flickr Creative
Commons)
The Economics of Pollution
● Since the 1970s the United States, using a variety of anti-
pollution policies, has made genuine progress against a
number of pollutants.
● Despite the gradual reduction in emissions from fossil
fuels, many important environmental issues remain.
● Along with the still high levels of air and water pollution,
other issues include:
uhazardous waste disposal,
udestruction of wetlands and other wildlife habitats,
uand the impact on human health from pollution.
Externalities
● The effect of a market exchange on a third party who is
outside or “external” to the exchange is called an
externality or spillover.
● Externalities can be negative or positive.
uNegative externality - a situation where a third party,
outside the transaction, suffers from a market
transaction by others.
uPositive externality - a situation where a third party,
outside the transaction, benefits from a market
transaction by others.
Pollution as a Negative Externality
● Pollution is a negative externality.
●Additional external costs - additional costs
incu
ed by third parties outside the production
process when a unit of output is produced.
● Social costs - costs that include both the private
costs incu
ed by firms and also additional costs
incu
ed by third parties outside the production
process.
Taking Social Costs into Account:
A Supply Shift
● If the firm takes only its own
costs of production into
account, then its supply
curve will be Sprivate, and the
market equili
ium will occur
at E0.
● Accounting for additional
external costs of $100 for
every unit produced, the
firm’s supply curve will be
Ssocial. The new equili
ium
will occur at E1.
Market Failure
● Market failure - when the market, on its own, does not
allocate resources efficiently in a way that balances
social costs and benefits; externalities are one example
of a market failure.
● If firms were required to pay the social costs of pollution,
they would create less pollution but produce less of the
product and charge a higher price.
Command-and-Control Regulation
● Command-and-control regulation - laws that specify
allowable quantities of pollution and that also may detail
which pollution-control technologies one must use.
● Requires that firms increase their costs by installing anti-
pollution equipment.
● Thus, firms are required to account for the social costs of
pollution in deciding how much output to produce.
● Example: Clean Air Act and Clean Water Act
Impacts of Clean Air Act
Difficulties with command-and-control
environmental regulation
● 3 difficulties with command-and-control environmental regulation:
uRegulation offers no incentive to improve the quality of the
environment beyond the standard set by a particular law.
u No incentive to do better.
uInflexible.
u Requires the same standard for all polluters, and often the same
pollution-control technology as well.
uSubject to compromises in the political process.
u Full of fine print, loopholes, and exceptions.
Market-Oriented Environmental Tools
● Pollution charge - tax imposed on the quantity of pollution
that a firm emits.
uGives a profit-maximizing firm an incentive to determine
the least expensive technologies for reducing pollution.
uFirms that can reduce pollution cheaply and easily will do
so to minimize their pollution taxes.
uExample: pollution taxes, gasoline taxes, water user fees,
wastewater discharge fees, and solid waste disposal fees.
Impacts of a pollution tax
Marketable Permits
● Marketable permit program (e.g. cap-and-trade) - a permit that
allows a firm to emit a certain amount of pollution.
● Firms with more permits than pollution can sell the remaining
permits to other firms
● A tradable pollution permits system reduces pollution at lower
cost than regulation.
● Firms with low cost of reducing pollution sell whatever permits they
can.
● Firms with high cost of reducing pollution buy permits.
● Result: Pollution reduction is concentrated among those firms with
lowest costs.
Example
u Acme and US Electric run coal-burning power plants. Each
emits 40 tons of sulfur