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Microeconomic concepts behind some major national problems

Agriculture .

Fluctuations in farm output * Farmers have limited control over their input (floods. An inelastic demand for agricultural products 2. Shifts of the demand curve for farm products *Because of the highly inelastic demand for farm products.The Short Run: Price and Income Instability Price and Income Instability in agriculture results from 1. insect damage. droughts. calamities) 3. a small shift in demand for farm products can drastically alter agricultural prices. A slight decline in demand will reduce farm income by a large amount. .

Long Run: A declining Industry 1. because it is inelastic with respect to income. . Over time. The demand for farm products has increased slowly. the supply of farm products has increased rapidly because of technological progress 2.

Pollution .

Human activities mainly include: • Industries for various human needs • Agriculture for food production and industrial needs • Transport for mobility of human beings • Dwelling for settlement in city or villages .Pollution The ultimate cause of pollution is human activity itself. Pollution is a human contribution to nature.

That will increase costs such as insurance. • Fresh water will need to be rationed. damaged resources etc. • Global warming will have a greater toll on smaller more impoverished countries. damaged goods. Probably even a black market commodity.How can it affect the economy? • Healthcare costs will rise • Law suits on industries • Disasters such as hurricanes and tornadoes will become more prevalent with global warming. . adding another non-taxable cost to people. taxes (for disaster relief).

• Most common example of negative externality is pollution since it imposes external costs in the society. occurs when people not directly involved in a decision are affected by it. . What is negative externality? • Negative externalities occur when production and/or consumption impose external costs on third parties outside of the market for which no appropriate compensation is paid.Negative Externality So recall: • An externality. in the economic world.

• The red line represents society's supply curve/marginal cost curve while the black line represents the marginal cost curve that the firm or industry with the negative externality faces.• This graph shows the effect of a negative externality. . • The optimal production quantity is Q'. but the negative externality results in production of Q*. The deadweight welfare loss is shown in grey.