Please wait while we process your request

Try it now!

USD
10

Calculate your price

Number of pages:

Order Now

Role of Government: Regulation, Market Failures, Price Controls, and Licensing

29

Discussion Questions:

Question 1

What does it mean when there is market failure? Give an example of market failure in the healthcare market?

 

Question 2

Assume there is no externality involved in this question. The following graph is a demand curve and a supply curve for a good or service under a perfectly competitive market.

2a

If the government wants to tax the producers, what would be the change in the supply curve, the equilibrium price, and the equilibrium quantity? Pick up a graph in the study material document and explain.

2b

If the government wants to subsidize the producers, what would be the change in the supply curve, the equilibrium price, and the equilibrium quantity? Pick up a graph in the study material document and explain.

2c

If the government wants to tax the consumers, what would be the change in the demand curve, the equilibrium price, and the equilibrium quantity? Pick up a graph in the study material document and explain.

2d

If the government wants to subsidize the consumers, what would be the change in the demand curve, the equilibrium price, and the equilibrium quantity? Pick up a graph in the study material document and explain.

 

 

Question 3

The following graph is a demand curve and a supply curve for a good or service in a perfectly competitive market. However, this equilibrium is done without the consideration of externalities on either the demand side or the supply side. We assume this equilibrium is done by a marginal private benefit (MPB) curve (demand curve) and a marginal private cost (MPC) curve (supply curve).

 

3a

Suppose this is the market for cigarettes. Consumers purchase without considering the impact of secondhand smoke. Therefore, a negative externality exists on the demand side. The social benefit should be lower than the private benefit.  Where should be a social demand curve (marginal social benefit curve, MSB) located in the graph? Choose a graph from the study material.

3b

From 3a. Suppose tax and subsidy are the two only strategies a government can do. What is your suggestion for government intervention? Tax or Subsidize the consumers or producers? (Hint: how to change the curve(s) operated in the market so the equilibrium price and quantity can be MSB=MSC? Refer to the impact of government intervention you did in Question 2.)

3c

Suppose this diagram is showing the demand and supply for manufacturing refrigerators. The factories, unfortunately, create pollution. The producers consider the cost incurred by factories only and pass the pollution to society. Therefore, we call there a negative externality existing on the supply side. The social cost should be higher than the private cost.  Where should be a social supply curve (marginal social cost curve, MSC) located in the graph? Choose a graph from the study material.

3d

From 3c. Suppose tax and subsidy are the two only strategies a government can do. What is your suggestion for government intervention? Tax or Subsidize the consumers or producers?

3e

From the graphs that you chose for 3a and 3c, there is a yellow triangle for each graph. This is an area due to over/under consumption/production at the level of Qp, compared with Qs (the equilibrium quantity if considering externality).  This area will disappear if the market is operated where MSB=MSC. What is it?

Leave a Reply

Your email address will not be published / Required fields are marked *

USD
10

Calculate your price

Number of pages: