4-2 simulation Checkpoint

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Southern New Hampshire University *

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201

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Economics

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Jan 9, 2024

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Kaneshia Wesley ECON 201 Simulation Checkpoint Government Tools: Some might say that the government is a tool for making sure there are standards and balance in place to ensure justice between the market and the consumers. The government has a variety of methods to handle market failure. Market failure is defined as the inefficient allocation of resources in a free market. (Kusabek, 2019). Examples of these tools are: Corrective taxes and subsidies by way of this is that the government engages this by taxing negative externality business transactions and supporting positive externality transactions. The government uses many different taxes and subsidies such as charging bigger corporations a fee for exceeding a specified amount of waste. And the corporations that cut down their overall volume receive a reward. Tradable pollution permits are the acts of permitting a company to produce a specific amount of pollution. A certain permit allows a business to emit a set quantity of pollutants without any penalties. “From the standpoint of economic efficiency, allowing the deal is good policy.” (Kusabek, 2019). Command and control policies over behaviors and actions, “for example, it is a crime to dump poisonous chemicals into the water supply.” (Kusabek, 2019). The external cost to society exceeds the benefits to the polluter.

Price maximum and minimum can be set by the government known as price ceiling and the price floor. A notable example of this would be the minimum wage, the lowest amount that a business can offer an employee as a salary for their labor. Supply and Demand Equilibrium: The government can appoint price ceilings and floors as well as have an impact on the supply and demand balance. The government's influence through tax levying on goods and services carries great weight by way of setting prices. We tend to notice a higher sales price due to higher taxes having to be paid. This affects the total sales and profit of the product. Taxes are normally distributed between the customers and the seller. In this situation, the higher the taxes the lower the seller's profits. Within the simulation, it was described as a nuisance fee which made me as the seller focus more on the dog's price to ensure a profit was made. With watching the market, you must act fast, those bids are ever-changing.

Consumer or Producer Surplus: There is a grave government influence on the consumer and producer surplus. “The producer surplus is defined as the amount a seller receives for a good minus the seller's cost of providing the good or service.” (Kusabek, 2019). This is in place to keep price points capped at a certain level. Which leads to the government using price ceilings and floors. Price ceilings establish the highest price that can be charged, and a price floor is the lowest price that can be set for an item. Having these in place aids in establishing price equilibrium. However, as the equilibrium decreases the producer's surplus decreases. And as equilibrium increases the producer’s surplus increases. “The consumer surplus is defined as the amount a consumer is willing to pay for a good minus the amount the buyer pays for it. Taylor has found a bargain. She has found an album she is willing to pay $100 for but only pays $80. She received a consumer surplus of $20.” (Kusabek, 2019). When the price of a good rises the consumer surplus declines. Versus when the price of an item declines the consumer surplus increases.

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4-2 simulation Checkpoint

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