Data Response – Burkina Faso

Question 1: Explain what is meant by a negative externality.

A negative externality is an effect of production or consumption on a market that has an unseen social cost, as it retracts from society. The result of negative externalities is a market failure, as it causes goods to be overconsumed (in the case of production externalities) or overproduced (in the case of consumption externalities). The result of this overconsumption or overproduction is welfare loss, which can be physically measured using a supply and demand diagram.

Question 2:  Using supply and demand diagrams, explain how negative externalities result in market failure.

To understand how negative externalities cause market failure, we first must address that there are two types of negative externalities: that of supply and that of demand. A negative externality of supply is, taking an example from the article, when forest land exploited for farming destroys other wildlife which could have provided in the economy. This can be demonstrated in Figure A below. Here, the marginal private cost (or MPC), is lower than the marginal social cost (MSC). This means that is cheaper for the firm to produce than the actual cost to society, which can result, again in the example of deforestation, in severe environmental degradation. The marginal benefit in the diagram represents the demand for the firms production. With this we can see that since the firm is producing under the cost to society, quantity increases from Qs to Qp and price drops from Ps to Pp. The result is a market failure, as the firm is overproducing and the produced goods are being consumed in a way that degrades other potential in the economy, hence the greater social cost.

Question 3:  Explain why an increase in the level of poverty within Burkina Faso contributes to environmental degradation.

An increase in the level of poverty in Burkina Faso leads to environmental degradation as there is less concern for sustainability when those involved in the production process view their production as a means of survival instead of market operation. That is, there is a certain level of severity involved when those producing are destitute, as losing sales may result in losing what little they possess. Because of this producers may feel inclined to try and produce more than can be sustained by the environment in order to secure their living. The results is environmental degradation as crop lands are not turned over properly and soil become infertile, making it useless to both human cropping and natural rehabilitation. When this happens the poverty-stricken farmers look to produce new crop land by then deforesting areas to be used in the same, unsustainable manner.

Question 4:  Discuss strategies that the government of Burkina Faso could introduce to reduce the extent of forest degradation.

The number one way for the government of Burkina Faso to reduce forest degradation is to subsidize and promote sustainable farming. Forest degradation occurs as land previously used by farmers becomes infertile due to poor agricultural practice in order to try and produce a larger crop yield than the land is capable of. The reason this is done is because practicing sustainable farming involves both a monetary commitment and time lag that makes sustainable practice more expensive and less practical than producing for a maximum yield. However, if the government of Burkina Faso was to try and subsidize substantial factors required for sustainable farming forest degradation could be averted. This involves addressing the two major factors involved with moving towards sustainable practice. The first of these is the monetary commitment, which involves reorganizing existing farms and providing them with the equipment needed to practice sustainable farming. This can come as a direct subsidization by the government through tax cuts or equipment production subsidization. The second factor that must be addressed is the time lag. The restructuring of the farming market will involve a period when crop yield will drop due to the restructuring. The government will have to look to subsidize crop supply in the market to ensure there is plenty of harvest available for consumption to avoid inflation as the supply from the restructuring farms contracts. This could be done by temporarily increasing crop imports into Burkina Faso to take the place of local produce temporarily or could be done by delaying the restructuring until sufficient crop reserves grown in Burkina Faso could be made and then released during the restructuring period.

Commanding Heights – Battle for the World Economy Impressions

Recently in our IB HL Economics class we watched the video Commanding Heights – Battle for the World Economy. This video detailed the ideas of both Keynesian economists and the more recent development of Hayek’s ideas in the world economy. The video interestingly covered the ideas of market control vs the free market. Both the idea of a free market, supported by Keynes, and a controlled or planned economy, supported by Hayek, have their strengths and weaknesses. People generally disagree with the idea of a controlled government because it is associated with the idea of a government having complete control over economic effects and direction. However, having a government that plans the direction of the economy in order to stimulate development is something that has proved very effective in the more recent world economy  – specifically in the United States and Great Britain. However, a free market is associated with the idea that the market itself will eliminate and ‘cleanse’ itself of the weaker industries that are unable to function without government intervention. A good example of this was the coal industry in Britain in the 1980’s. The industry was huge, but relied on subsidies to operate, at one point exceeding $3 Billion annually to support the 180,000 jobs it provided. Now in Britain, due to the privatization of the coal sector, only 3,000 jobs remain, but the industry is completely free of government subsidies.

Portfolio Selection – Semester 1

Here I’ll be covering the basis of my portfolio on my blog, including direct links to other articles and blog posts within my blog that I find effective in expressing some of the ideas I have learned so far in Semester 1 of IB HL Economics with Dr. Anthony.

PPC Diagrams – While we only briefly talked about PPC Diagrams in the beginning of the Semester to explain opportunity cost, I did happen to explain it in both a blog post and VoiceThread update. PPC diagrams are essential in understanding opportunity cost and how there are limited supplies for unlimited wants and needs. Link here.

Demand and Supply Curves – We have looked existentially at these are they are the basis for most ideas in economics. Being able to understand how supply and demand interact is important in understanding why market prices are established, and how raising or lowering prices can affect these values. Link here.

Price Ceilings and Floors – A common concept associated with the construction of supply and demand curves is the use of price ceilings and floors in an economy to regulate prices. Both can be used to either keep prices low for the consumer’s benefit or high for the producer’s benefit. However, many people don’t understand how these restrictions on price can upset the regulation created by free markets which establish their own prices at the point which is most beneficial for producers and consumers. Link here.

Feel free to browse through the rest of my blog posts in addition to the ones linked here. Find anything you like? Drop me a comment and let me know. I’ll be sure to be keeping the blog more updated now as I continue to learn more about the basics of microeconomics here at Canadian Academy.

IB Blog Refection – Economics

1) IB Economics grading style is very different from the grading schemes of other classes. The criteria focuses more on direct definitions, key concept application and examples. I’ve found that grading wise the use of examples to explain concepts is always a positive. Using graphs to coincide with these examples and definitions is always advised.

2) Having more formative practice is very helpful. The ability to practice how we need to organize and express our ideas prior to their actual application for a grade is very helpful in reinforcing both specific definitions and also how we use these definitions to explain ideas. I can say that more formative practice will lead to better grades, but I feel that under the general circumstances of learning that is always a given. I feel the formative practice given to us to use for Section 1 was just enough to allow us to gauge how we wanted to write our final paper.