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I've been able to outline some of the main ones, but I'm unable to describe government activities against them.

  1. Over prod. of inappropriate G&S (de-merit goods)
    Eg. Illicit drugs, tobacco, alcohol, gambling
    Explanation: Motivated by greed, lack of awareness.
    Government action: Laws and regulations to prevent or limit the production OR encourage consumption of alternatives.Eg. Extra tax on tobacco, Carbon tax, max. stds. of exhaust fumes, chemical waste regulations, subsidies for use of solar power

  2. Underproduction of required goods. E.g. Public goods such as, defence, prisons, lighting, and Merit goods such as, public parks, emergency services, and public transport.
    Explanation: The private sector would find it unprofitable to provide the services when consumers refuse to pay for merit or public goods and services (‘free rider’ problem).
    Government action: ???

  3. Regulations such as price floors or price ceilings prevent the efficient allocation of resources.
    Explanation: Price floors can have an effect if they are set above equilibrium price. Price ceilings can have an effect if they are set above the equilibrium price.
    Government action: ???

  4. Environmental concerns (E.g. natural disasters)
    Explanation: Effect on the environment can affect the supply or production of goods.
    Government activities: ???

  5. Abuse of monopoly power
    Explanation: Imperfect markets restrict output to maximize profits
    Government activities: ???

  6. Externalities (e.g. national defense, smoking indirectly causes healthcare costs)
    Explanation: A trade may impose significant costs on those not participating in the trade.
    Government activities: ???

It might be worth mentioning now that I don't have a copy of the textbook at the moment and have a SAC tomorrow...

Will appreciate any help :)


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1 Answer

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Best answer
  1. Looks good. Taxes in general

  2. Subsidies, credits/vouchers to buyers, etc.

  3. Price floors and ceilings are government actions themselves. You just remove them. Allow free markets to set the price to clear the market.

  4. Environment concerns fall into overproduction usually (e.g. Too much carbon use). Raise taxes to match the "social cost" of the environmentally bad product.

  5. Price ceiling to stop them from charging too high

  6. Subsidise (to reflect social benefit, eg public health) or tax (to reflect social cost, eg pollution) accordingly


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