Legal system and wealth

Country A and B : they have identical physical endowments of a key natural resource.
Country A : Any profits made from extracting that resources are subject to confiscation by the           government.
Country B : There is no such risk.

** How does the risk of expropriation affect the economic endowment of the two nations?
** In which nation are people richer?

The country B would be richer than the country A because there is no risk of confiscation by the government in the country B, which is based on the rule of law. When the legal system causes the risk of expropriation, it would discourage people to make long-term fixed investment, contributing to the negative effects on the economic growth and the standard of living for the citizens. This situation may be common in the countries ruled by civil law. On the other hand, under the common law system, people are willing to invest their money for long-term assets or business when their property is protected, which would be expected that the economic activity and growth is promoted.

Why is it hard for normal consumers to force the FDA to do what is best for them of prescription drugs?

FDA (Employees of the Food and Drug Administration) makes decisions whether the new medicines or prescription drugs can be available for the public or not in the United States. It is impossible for physicians in America to prescribe the medicine or drug when FDA does not allow it.

All drugs take time to make sure its benefit for patients and prevent the life-threatening. There are two conditions that the new drug would not be introduced: unsafety and ineffectiveness. Type 1 error - the thalidomide possibility and the type 2 error - the introduction of drug is delayed (drug lag). From this point, the type 1 error is visible but type 2 error is hard for those who do not have professional knowledge to identify.  

In order to realize and prevent Type 2 error, it would be required for consumers to have professional knowledge in medical fields, especially medicine. Without the ability to examine the benefit and side effects, it would be hard for consumers to force FDA, insisting to break down the drug lag. From these reasons, consumers cannot simply force FDA to do what the best for consumers of drugs is.

The property right and economic effect

When the landowners are rewarded by fracking, they would be willing to explore and product the natural gas from their land. This is because the mineral such as oil and gas from their land is extremely lucrative. As for the nations that would not give landowners benefit for the oil and gas such as Europe, people do not allow the exploration by insisting “Not In My Back Yard” (NIMBY). Specifically, when the national governments decide to share the benefits from fracking with the landowners, they would change their attitude, allowing drilling their land. However, given that fracking can make a fatal effect on environment, it would be required for government and landowners to consider the environmental aspect.

Costs for a scarce good - toll

Consider a highway with a hot lane and a lane that has no toll. Assume that the toll must be paid by all cars that use the hot lane, no matter how many people are riding in them. What can you predict about the average occupancy of vehicles in the hot lane compared to vehicles in the other lane during rush hour?

Compared to the occupancy of vehicles in the lane that has no toll, there would be fewer vehicles on the hot lane. Accordingly, the hot lane would enables drivers to succeed in arriving at their destination in given time period. It is the fact that a lot of cars are jammed and people would be stuck without moving during the rush hour. However, road tolls allows the number of cars on the hot lane to be reduced, limiting the user of the lane.

Water price

Governments often control the water price, allocating it on nonprice.
The reason why government is doing like that:

The water price controlled by the government can make negative effects on society. Due

to the law of supply, the less the price is, the lower the amount supplied is. Accordingly, when

the government implements the nonprice on water, it is likely for people to suffer from the lack

of water; ranging from limited hours of service to getting no clean water at all. However, the

government often do this in order to make more people access to clean water and consume it.

Although the law of demand and supply applies to water consumption, it would be relatively

inelastic. It is because water is a necessary required good while we can live without other goods

like cosmetics. When we cannot use water at all, we cannot live any more. From this perspective,

governments often regulate the price on water for people who cannot afford to consume water

due to their financial problem.

Opportunity cost example

Q. You can wash, fold, and iron a basket of laundry in two hours and prepare a meal in one hour. Your roommate can wash, fold, and iron a basket of laundry in three hours and prepare a meal in one hour. Who has the absolute advantage in laundry, and who has an absolute advantage in meal preparation? Who has the comparative advantage in laundry, and who has a comparative advantage in meal preparation?

I would have the absolute advantage in laundry in that I would wash, fold, and iron a basket of laundry in only two hours while my roommate would spend one hour more than I do, which means my ability to complete laundry requires to less resource (time). About the absolute advantage in meal preparation, my ability is the same as roommate’s. Considering time allocation, my roommate has the comparative advantage in meal preparation because the opportunity cost would be lower with the reason that I would finish another work in a less time. In addition, I think that the comparative advantage cannot be mentioned in laundry and the absolute advantage in meal preparation would remain the same.