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Economic Principles
According to Chimeli and Soares (2017), making mahogany harvesting illegal resulted in 5,171 additional deaths. The aim of this task is to reflect back on Brazil’s experience with various interventions in the mahogany market.
(a) What lessons can be learnt by other countries from Brazil’s experience regarding (i) the regulation and taxation, and (ii) the abolition of undesirable economic activities and the unintended consequences of government intervention? (5marks)
(b) One of the principles of economics is that rational self-interest can maximize social welfare. However, there are also legitimate concerns for the survival of mahogany and other species and the adverse consequences from deforestation in general.
i. Explain why unregulated harvesting can lead to market failure, e.g., more harvesting than is socially desirable.
(5 Marks)
ii. In addition to the above government interventions, several market based solutions have been implemented or considered.
One market solution is to grow mahogany in other countries. Brazil has a natural geographic advantage in growing mahogany. Referring to opportunity cost, explain what is likely to happen to the cost of growing mahogany now that Brazil is no longer a producer?
(2 Marks)
Discuss one other solution that the market might come up with to reduce the danger of species extinction? (Hint: consider factors that shift the demand or supply of mahogany.)
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