Quiz 17: Interdependence and the Gains From Trade

Business

Exhaustible resources: Exhaustible resources are those resources which are available at fixed quantity. Common pool resources: Common pool resources refer to those renewable resources which can be accessed by everyone and it cannot be stopped to use those resources by any means. Common pool problem: Common pool problem refers to the use of common pool resources till the marginal social cost is equal to marginal social benefits. Renewable resources: Renewable resources refer to the resources which can be reproduced and available over a period of time.a.Fixed amount of resources: Resources that are available only in a fixed amount are exhaustible resources. b.Open-across resource: The possibility that an open-access resource is used until the marginal value of additional use equals zero is known as the common pool problem. c.Periodic use of resource: Resources for which periodic use can be continued indefinitely are known as renewable resources.

Common pool resources: Common pool resources refer to those renewable resources which can be accessed by everyone and it cannot be stopped to use those resources by any means. Fish is a renewable resource which is available for everyone. Fish has its renewable capacity. If the fisher catches a huge amount of fishes, then its renewable capacity decreases and the fish becomes a scarce resource.There is no system available to control fishing, since the ocean is so large. It is not possible to enact law or property rights to catch the fish. Hence, it is difficult to regulate fishing in the ocean.

Marginal private cost: Marginal private cost refers to the additional cost incurred in producing one more additional goods. Marginal external cost: Marginal external cost refers to the additional cost of pollution incurred due to producing one more additional good.Marginal social cost: Marginal social cost is the addition of marginal private cost and marginal external cost. Marginal private benefit: Marginal private benefit refers to the benefits enjoyed by the firm due to producing one more additional good.Marginal external benefit: Marginal external benefit refers to the benefits to the environment due to producing one more additional good.Marginal social benefit: Marginal social benefit is the addition of marginal private benefit and marginal external benefit. Difference between fixed production technology and variable production technology: img Fixed production technology Fixed production technology and the external cost have fixed relationship. The production of each goods resulted in the same amount of external cost. In this case, the government can reduce the external cost only by reducing the production. Hence, government reduces the production till the marginal social cost is equal to the marginal social benefits. Variable production technology Variable production technology is used to reduce the external cost or pollution at the given level of production. In this case, the technology is changed to reduce the external cost without reducing the production. Hence, the government adopts a different technology to reduce pollution until the marginal social cost is equal to the marginal social benefit. Hence, the government needs not to reduce the production. It can decrease the external cost by changing the production technology.

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