Hello! Would you mind helping me solve the following Microeconomics question? \"
ID: 1196815 • Letter: H
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Hello! Would you mind helping me solve the following Microeconomics question? "Set out the general principles as an economist you would apply to assess the desirability for Australian government policy interventions in a market-based economy. Include at least two examples to illustrate particular applications of your principles." I would be very grateful if you could give me some detailed explanation. Thank you very much! Hello! Would you mind helping me solve the following Microeconomics question? "Set out the general principles as an economist you would apply to assess the desirability for Australian government policy interventions in a market-based economy. Include at least two examples to illustrate particular applications of your principles." I would be very grateful if you could give me some detailed explanation. Thank you very much! Hello! Would you mind helping me solve the following Microeconomics question? "Set out the general principles as an economist you would apply to assess the desirability for Australian government policy interventions in a market-based economy. Include at least two examples to illustrate particular applications of your principles." I would be very grateful if you could give me some detailed explanation. Thank you very much!Explanation / Answer
Evidence of a market failure that results in an inefficient allocation of resources is a necessary but not sufficient condition to justify government intervention. Government intervention in markets is costly, and the benefits must outweigh the costs to justify it. The policy instrument and its design should thus be chosen to maximise the net benefits of intervention.
The relevant measure of the cost of government intervention in the food supply chain is the opportunity cost. When resources used for intervention are thus constrained elsewhere, the net benefits of intervention in the food supply chain have to be weighed against the net benefits of other important activity.
When a market failure is present and government intervention is justified, decisions remain about which agency of which government (Commonwealth, state or local) should intervene. The answer depends on the nature of the market failure; the benefits of centralisation, decentralisation and cooperation between agencies; the constitutional division of powers between the states and the Commonwealth; and other specifics. Intervention by the Victorian Government might not involve DPI.
Australia has a mixed market economy where the decisions concerning production and distribution are determined by a mixture of market forces with some degree of government intervention. The free operation of market forces does not always achieve the most desirable economic and social outcomes. Thus, governments may intervene in the market system if markets fail to achieve allocative efficiency in the provision of goods and services. Market failure can arise when the allocation of goods and services is less than optimal and can occur when there is inadequate provision of merit and public goods.
Merit goods are goods or services that the government believes are beneficial to society but they may not be produced in adequate quantities because the market is too small and there is little to no incentive for private production. Merit goods and services are those that individuals undervalue and the government’s preference for them leads to subsidisation of their production or production by government agencies. Examples include the provision of opera, libraries, theatre, film and cultural productions for the community on behalf of government funded or subsidised organisations. Public education is an example of a merit good since governments believe that the benefits of access to education will be facilitated through subsidisation, which improves equality or opportunities. For example, it may make scholarships, grants and bursaries available to gifted and talented individuals from lower income families or deprived backgrounds.
Public goods such as national defence or national parks are said to be non excludable and non rival . They are non excludable since no one can be excluded from their consumption. They are non rival since one person’s consumption of the good does not reduce the amount available for someone else. These conditions must be met for the good to be considered a pure public good, making it unmarketable by the private sector. Pure public goods include national defence and lighthouses. In the real world, many goods exhibit public good properties but are quasi public goods, since their provision may be shared by both the government and private sectors. Examples include environmental goods such as beaches, lakes, oceans or rivers, which may exhibit public good qualities of being non rival and non excludable. Non paying users may not be excluded from consumption if no market price is payable (i.e. zero marginal cost of supply) and there is an absence of well defined property rights. Government may regulate their usage but allow private management of some resource to increase overall efficiency in their allocation. In the absence of government, public goods will not be produced at all, while some merit goods will be produced, in a form that is, however, different from what we have today.
The problem of ‘free riding’ arises from non paying users congesting or exploiting such goods. Since public goods are non excludable and non rival, entrepreneurs may lack the incentive to provide them since free riding cannot be prevented. Governments may intervene in the production, regulation, maintenance and management of public goods to maximise community benefits from their use and to prevent over exploitation or congestion of the resource. What has evolved with the management of public goods is government regulation in tandem with incentives for private provision or management and the use of market based instruments to achieve allocative efficiency.
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