AUGUSTO B.

AGOSTO
Microeconomics 2
Professor Gerard Go

1. The article of Diokno discusses the public good. There are different
type of Public goods- national level and local level. In public good,
market would not supply, if they will supply it is undersupplied. One of
the necessity of being efficient, effective and responsive in order to
encourage the creation of more firms and modern farms, which in
turn, would create a lot of decent jobs

Diokno clarifies that to be effective and efficient public good, the

government should be able to reduce the cost of doing business, build
infrastructures and reduce transaction costs. But not all of the population
can avail of that. Properties of public goods: Non-rivalness and non-
exclusivity. How about in the aspect of revenue collectible from the said
sector.the foregone revenues from these activities will be outweight by the
result of creating more jobs and benefits to the people.

2. Habitos column talks about externalities. He pointed out that it is an

important source of market failure; that is, they provide one major
instance when market forces left alone will fail to provide an efficient
outcome a la the invisible hand postulated by Adam Smith. They
also give a prime illustration of the economic principle that theres no
such thing as a free lunch.

He clearly stated that the costs and benefits faced by one person or firm
(private costs and benefits) are often not the same as those faced by society
(social costs and benefits). On top of the private cost there are social cost
that is not included in the production cost since the capitalist is after to the
maximization of profit.

There are different ways to mitigate the external cost incurred. The society
can find the optimal level of different activity like manufacturing of cement
and mining through full accounting of benefits and costs. The different
companies have to internalize the full costs incurred by society in the
course of their operations. Externalities must be part of the calculation of
how much the state must obtain from mining firms by way of taxes, royalties
and charges.

Externalities may come out also as positive. An activity that gives benefits to
the people or society is positive externalities. Example of this is the
constructing beautiful park in a neighbourhood will give happiness to the
residents. It can be cited also as an example the practice of real estate
developers of providing 20% of the total development cost to socialized
housing. The provision of incentives given to these companies as a benefit in
providing socialized housing to the poor people.