ECO 201 4-2 Simulation Checkpoint Assignment

Step-By-Step Guide on ECO 201 4-2 Simulation Checkpoint Assignment

Introduction to ECO 201 4-2 Simulation

This Owlisdom How-To Guide will teach you how to analyze competitive markets and externalities based on the instructions provided. Following these guidelines can solve the ECO 201 4-2 Simulation Checkpoint Assignment. This guide will help you understand the government tools used to correct market failures, comprehend the impact of government intervention on supply and demand equilibrium, and identify the effects of government actions on consumer and producer surplus.

NOTE: Remember to add pictures of your simulation reports in your submission and reflect on your decisions to support your analysis.

Play the Simulation Game

Discuss tools available to the government to correct a market failure. Provide examples from the textbook.

Understanding Government Tools

To solve the ECO 201 4-2 Simulation Checkpoint Assignment, we will first play the Simulation game and then discuss the government tools.

• Play the simulation games “Externalities Without Policy Interventions” and “Externalities With Policy Interventions” in the MindTap environment.
• Familiarize yourself with the concepts of Command and Control (CAC) policies and market-based policies.
• Provide examples of each type of government tool from the textbook.

Example

Government intervention can take the form of Command and Control (CAC) or market-based policies when an externality induces market failure and ineffective resource allocation. As stated by Mankiw (2021). Contrarily, CAC policies deal with behavior directly, while market-based policies encourage private decision-makers to handle the issue on their own. The objective of CAC strategies may vary depending on the externality in question, aiming to either incentivize or discourage specific behaviors. A CAC approach, wherein the Environmental Protection Agency imposes restrictions on enterprises’ emissions of contaminants into the atmosphere, could potentially be adopted by the government. As a consequence of this regulation, organizations are obligated to comport themselves in accordance with particular standards. Remedial taxes and subsidies, as well as the exchange of pollution permits, are examples of market-based policies. Carlin & Bowles (2020). Corrective taxes are one approach that may be used to guarantee that private leaders are conscious of society’s costs, which they have to take into consideration in combination with the adverse externality. This can be accomplished through the utilization of corrective taxes. An example that exemplifies this concept is the ability of the Environmental Protection Agency to levy charges on businesses proportional to the amount of pollution they generate. The ability of businesses to purchase and sell pollution licenses gives pollutants leverage in the international struggle against pollution. In the event that an organization’s annual emission falls short of the maximum allowable quantity of 500 tons of pollution as determined by the Environmental Protection Agency, it may engage in negotiations with another company to repurchase the remaining 200 tons of dispersed pollution. Both companies benefit from the agreement, which also ensures adherence to the predetermined emission level mandated by the Environmental Protection Agency.

Describe how government intervention affects the supply and demand equilibrium. Refer to the simulation game to explain your responses.

Analyzing Demand and Supply Equilibrium:

The next section of ECO 201 4-2 Simulation Checkpoint Assignment will discuss how government interventions affect supply and demand.

• Reflect on your decisions regarding government intervention in the simulation games.
• Understand the consequences of government intervention and the equilibrium of supply and demand.
• Use examples from the simulation activities in order to explain intervention by the government in demand and supply equilibrium.
• Analyze how changes in prices influence consumer demand and producer supply.

Example

Supply and demand equilibrium is disrupted whenever the government uses one or more of its powers to intervene in the market. Businesses are inclined to decrease the costs at which they offer their products for sale, thereby stimulating consumer demand for such commodities when the government offers financial assistance to them. (Stansak, 2020). An imbalance is corrected by the demand and supply forces of the market when the purchasing power of consumers is diminished as a result of a reduction in taxes imposed by the government on manufactured goods. Conversely, inequities between supply and demand typically result in price increases.

Government intervention in the market’s equilibrium between supply and demand is illustrated through the simulation game. Its intervention lowers the expenses of each item in the game, which causes their worth to stay the same or even be raised. Thus, it decreases the cost associated with addressing nuisances per individual. The items’ supply curve shifts towards the right, which means it rises, and equilibrium demand rises because the government lowers prices, which increases customers’ purchasing power and shifts the supply-demand balance.

Specify which government interventions cause a consumer or producer surplus. Explain how they impact consumers or produce a surplus. Provide examples from the textbook.

Evaluating Consumer or Producer Surplus

We will evaluate consumer and producer surplus for the last section of ECO 201 4-2 Simulation Checkpoint Assignment.

• Consider the effect that government taxes have on surpluses of producers and consumers.
• Identify government interventions that result in surpluses for consumers and producers.
• Use examples from the simulation games to illustrate the effects of government actions on consumer and producer surplus.
• Evaluate how government interventions, such as price controls and import tariffs, affect consumer and producer surplus.

Example

The imposition of taxes by the government may result in an economic surplus for both producers and consumers. It is more significant how taxes reduce the surpluses of consumers and farmers than the exact quantity of tax paid, whether directly or indirectly. For instance, a $1,000 per gallon milk tax does not generate any additional tax revenue because it ceases legal milk production. On the contrary, the implementation of this tax induces substantial economic harm by depriving both producers and consumers of surplus. (Mankiw, 2021). Additionally, taxes reduce the volume of commerce as a whole, which reduces earnings. An increase in consumer prices results in an equivalent reduction in consumer surplus. A reduction in supplier prices results in an equivalent decrease in surplus capacity or profit. Further instances of government intervention that result in consumer and producer surpluses include import tariffs, price controls, and price ceilings.

Closing

Analyzing competitive markets and externalities is essential for understanding the role of government intervention in correcting market failures. Following the How-To Guide ECO 201 4-2 Simulation Checkpoint Assignment, you can report your simulation game experiences and address various government intervention options effectively.

You can also read our ECO 201 next module 5-2 Simulation Discussion: Production, Entry, and Exit.

References

Bowles, S., & Carlin, W. (2020). What Students Learn in Economics 101: Time for a Change. Journal of Economic Literature, 58(1), 176–214. https://doi.org/10.1257/jel.20191585 

Mankiw, N. G. (2021). Principles of Economics (9th edition). Cengage Learning, Inc.

Stansak, J. (2020, November 15). The Effects of Government Intervention in Markets | Fiveable. https://library.fiveable.me