The Issue Of Fishing And Piracy - 1626 Words

Question 1 According to the article, the next-best alternative use of time when for some fishermen in Indonesia is turning to piracy. Since the fishing and piracy are similar activities, these two activities will have the similar marginal cost, however the poor weather conditions may decrease the marginal cost for piracy, because the poor weather conditions provide a cover to the pirates and make them can hijack ships easier. And if weather conditions are unsuitable for fishing, the marginal benefit will decrease due to the decrease in the number of fishes captured each net. But the marginal benefit for piracy isn’t influenced by the weather. Therefore, the rational decision makers will seek another source of income when the marginal†¦show more content†¦As the negative externalities appear, tax can apply. As the graph shown, people maximize their welfare where PMB = PMC. By applying the tax of P0 -P2, the supply curve shifts to SMC and price rises from P1 to P2, People will no w consume less, as the quantity decreases from Q* to Q**, the negative surplus (shaded area) will decrease, thus, the social well-being increases. c)As a criminal organization, government regulation will have no effect on them, so they will ignore the regulations instead of comply, so the private marginal cost of Mafia running an illegal sector for gambling will not be increased to the social marginal cost, so the negative externalities will still exist, the social well-being will not be maximized, and the lower price than other legal gambling house (because Mafia does not subject to this tax) will give gamblers a incentive to participate the gambling market ran by Mafia more, the quantity of gambling will exceed the efficient level. Therefore, the existence of illegal sector for gambling will decrease the effectiveness of the government intervention. d)The market of gambling is already in an efficient level with government taxes, further government regulations of reducing the number of the gambling machines can only reduce the social well-being. There will be a decrease in supply, so the supply curve shifts inward, as a result, the equilibrium price will increase, and because the demand for gambling is relatively inelastic