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Problem set 2 -solution

The document discusses the effects of price ceilings, price floors, taxes, and subsidies on demand for goods, particularly focusing on substitutes and complements. It also highlights government initiatives in Argentina aimed at promoting solar energy and ecotourism, as well as environmental conservation through tree planting. Additionally, it addresses the positive externalities of bringing scientists back to Argentina and the impact of agricultural practices on the environment.

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Luke Luke
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26 views2 pages

Problem set 2 -solution

The document discusses the effects of price ceilings, price floors, taxes, and subsidies on demand for goods, particularly focusing on substitutes and complements. It also highlights government initiatives in Argentina aimed at promoting solar energy and ecotourism, as well as environmental conservation through tree planting. Additionally, it addresses the positive externalities of bringing scientists back to Argentina and the impact of agricultural practices on the environment.

Uploaded by

Luke Luke
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Lucas Alberto Chiodi - Problem Set 2 09/11/2021

1A) Price Ceiling & Substitutes.


When a price ceiling is applied to good A, the price of the good will decrease. Thus demand
for good A will increase. Due to the substitution effect, this means that the demand for good
B will decrease, as consumers move from good B which is now more expensive relative to
good A than it was before.

B) Price Floor & Substitutes.


If we apply a price floor to good A, the price of the new quantity bought and sold will
increase. Therefore the demand for good A will decrease. Because of the substitution effect,
the demand for good B will increase, at the same time that consumers switch from good A
which is now more expensive relative to good B than it was before.

C) Tax & Substitutes.


If we apply a tax to good A, the price for the consumers will increase and the quantity
demanded of that good will decrease. Because of the substitution effect, the demand for
Good B will increase as consumers will now prefer to buy more of good B than good A.

D) Subsidy & Substitutes.


When applying a subsidy to good A, the price for the consumers will decrease and the
quantity demanded will therefore increase. Due to the substitution effect, demand for good B
will decrease because consumers from goob B will now prefer to buy more of good A. .

2) In Santa Fe ( Argentina) the local government implemented the first strategy in the
country to increase the demand for solar panels. They provided subsidies and tax reductions
to consumers. Because of the substitution effect, the people of Santa Fe started switching
from traditional fuel energy (decrease in demand) to the solar system (increase in demand).
Later on, many other provinces replicated the same mechanism.

3A) Price Ceiling & Complements.


When we apply a price ceiling to good A, the price of that good will decrease and quantity
demanded will increase. If we consider that good B is complementary, therefore demand will
also increase.

B) Price Floor & Complements.


If we apply a price floor to good A, the price of the good will increase and the quantity
demanded will decrease. The demand for good B (complement) will also decrease.

C) Tax & Complements.


When we apply a tax to good A, consumer price will increase and quantity demanded will
decrease. Therefore the demand for good B will also decrease.

D) Subsidy & Complements.


If we apply a to good A, the price that consumer will pay will decrease and quantity
demanded will increase. Thus demand for good B (complement) will also increase.

4) In Córdoba ( Argentina), the government implemented a high tax on sugar in order to


decrease obesity and diabetes rates. This measure reduced the consumption of sugar but
also affected the sales of the traditional Cordoba´s “hot chocolate fair” . As sugar was more
expensive, demand for “hot chocolate” ( whose recipe contains large amounts of added
sugar) decreased.

2-Externalities
1) Intending to bring Argentine scientists back from abroad, in December 2020, the Ministry
of Science and Technology relaunched the "Roots Program," in which 22 biology
researchers returned to the country. This measure implies favoring a positive externality
since it grants subsidies to finance the return, cover for tickets, and remove personal objects
and scientific material, whether equipment or bibliography. The state also helps to find
schools for the children and work for the spouse upon return.
The primary market of influence: This will affect the public and private, scientific
companies of Argentina, which will benefit from the return of scientists. For example, some
of them would probably work on the recovery of biodiversity in Patagonia. This will have an
impact on the quality of life of society and the ecosystem.
Secondary market of influence: Besides, it will directly affect ecotourism in the region. In
the medium and long term, this sector could indirectly benefit from this state policy.

2) To promote ecotourism, the government can: 1) increase the number of national parks
and protected areas, 2) prohibit certain activities that damage the environment in the policy
region. 3) grant subsidies or tax incentives to companies in the ecotourism sector.

3) Producing meat and crops in South America involves cutting down the rainforest,
impacting the global climate and local environment. In the province of Cordoba ( Argentina),
where I live, in 2017, the government launched an initiative that requires that at least two
percent of agricultural areas have trees. This implied having to plant some 50 million trees
throughout the territory of Córdoba (it has not been completed since local producers have up
to 10 years to achieve the objective). Those who propose to cover more than the stipulated
percentage with trees will receive a tax benefit on the Rural Real Estate Tax.
The primary market of influence: It will impact arable and pastoral lands, thereby affecting
producers' profitability. However, it contributes to improving the local ecosystem with great
benefits for the community. Through the incentives proposed by the government, it is
intended that all producers implement the measure.
Secondary market of influence: increasing the area of forests will directly impact the
economic activity of nearby nurseries and companies linked to environmental conservation.

4) When dealing with large amounts of forests, the government can grant subsidies to
nurseries and NGOs to speed up the planting of trees. Likewise, it can provide tools and
technical advice to guarantee the adequate distribution of tree species.

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