Question 1

The demand and supply curves for production of plastic are shown as follow: Qd = 40,000 - 5000P Qs = 10,000 + 5,000P The marginal external cost associate with production of plastic is given as: MEC = 0.0003Q

a. What is the competitive price and output?

b. What are the socially optimal levels for price and output?

c. Draw a diagram to show the costs and benefits to the society from the production of plastic.

Question 2

Public finance is the study of the role of the government in society (economy). However, the role of the government has always been controversial by having people with different opinions about the role of government and its contribution to the economy. Governments are organizations formed to exercise authority over the actions of people who live together in a society and to provide and finance essential services. Individuals pay taxes and in return the government provide multiple services the objective of which is to improve the societys well-being.

A. Why governments intervene in the market economy? Can you explain the justifications that you think are necessary to the intervention of the government.

B. Suppose that you want to measure the size of the government in Bahrain, what methods can be used to determine the size of the government in society?

C. How do you explain the outcome of government intervention in the economy?

D. The Economy of Bahrain is a mixed economy? Do you agree with this statement? If so, how do you justify your answer?

E. Why does distribution of income cause efficiency losses? Why might society choose to redistribute resources from one group to another when doing so reduces the overall size of the economic pie?

F. Government also affects our lives through regulatory functions in a wide variety of areas. Explain.