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1、Report for Economic IssuesOutcome 3 Name: Zhang ChenMajor: International Economic and TradeClass: 2Number: 20115434Contents1. Introduction2. Findings2.1 Market Failure 2.2 Public Goods2.3 Merit Goods2.4 Externalities2.5 Imperfect Competition2.6 UK Government policy on welfare2.7 The evaluation 3. Co
2、nclusion4. Reference1. IntroductionMy reporter is expounding the market failure, and in my explanation I make appropriate reference to the role of government in relation to each of the following: Public Goods, Merit Goods, Externalities and Imperfect Competition. Later, I will explain the UK governm
3、ent policy on welfare and identify and describe the instruments the government use to achieve their policy and give a justified evaluation of the performance of the policy in relation to its use within the UK2. Findings 2.1 Market FailureAn economic term that encompasses a situation where, in any gi
4、ven market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium.Market failures have negative effects on the economy because an optimal allocation of
5、 resources is not attained. In other words, the social costs of producing the good or service (all of the opportunity costs of the input resources used in its creation) are not minimized, and this results in a waste of some resources. For example, the common argument against minimum wage laws. Minim
6、um wage laws set wages above the going market-clearing wage in an attempt to raise market wages. Critics argue that this higher wage cost will cause employers to hire fewer minimum-wage employees than before the law was implemented. As a result, more minimum wage workers are left unemployed, creatin
7、g a social cost and resulting in market failure.2.2Public GoodsImagine that the government did not provide an army, navy, air force, etc. A private company might have the idea of forming a national army and to raise the required money, they decide to ask everyone for 10. If you were that person on t
8、he CND march, and you did not want to be defended, then you would not pay. There may be a lot of people who refuse to pay for this reason. Also, there may be some people who do quite want to be defended, but take the risk of not paying on the assumption that there will be some people in the UK that
9、will care enough to pay the inevitable increased price. This is the free-rider problem. The people who do not pay, for whatever reason, are having a free ride.To sum up, the reason why public goods come under the topic Market failure is that the free market would fail, horribly, to provide defense a
10、nd street lighting if left to them. The government has to intervene to correct this market failure.2.3 Merit Goods Merit goods are also things that are good for you, but unlike public goods they can be provided privately. The problem is that if they are provided solely by the private sector then the
11、y tend to be under-consumed, so, again, the government has to step in to correct the market failure. The best two examples are health and education. Both of these goods can be provided privately. Some of you may be at a private school (or independent school, as they are called), or your family may h
12、ave a private health insurance scheme. But, if the government did not step in and provide state schools and the NHS, then numerous families would not be able to afford either. This would cause increased crime and reduced productivity from an underclass of the non-educated and increased health proble
13、ms which can also cause problems for the labor market.2.4ExternalitiesNegative Externalities in Production: The socially optimal output level is less than the market equilibrium quantity. Negative externalities in production or consumption lead markets to produce a larger quantity than is socially d
14、esirable.When externalities are significant and private solutions are not found, government may attempt to solve the problem through command-and-control policies, market-based policies.The government can either regulate behavior or internalize the externality by using Pigovian taxes.2.5 Imperfect Co
15、mpetitionIn economic theory, imperfect competition is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied. It is a market structure that does not meet the conditions of perfect competition. There may be imperfect competition due to a time
16、lag in a market. An example is the “jobless recovery”. There are many growth opportunities available after a recession, but it takes time for employers to react, leading to high unemployment. High unemployment decreases wages, which makes hiring more attractive, but it takes time for new jobs to be
17、created.2.6 UK Government policy on welfareWelfare economics is the study of how an economy can best allocate its resources to ensure that they achieve the greatest utility or economic welfare of its people, When resources are used efficiently then they maximize the welfare or utility of all. This i
18、s refers to peoples well being, and the United Kingdom Government believes it has a role in the redistribution of income and wealth allowing the increase in economic welfare. This policy is achieved by 1.Taxationby taxing those “who have ”,the Government can then give to those who do not “have ” 2.
19、Legislationemployment laws or discrimination laws (see supply side policies)3. Providing system of benefits and support.Government accepts that there are certain goods and services that are beneficial to society but will not be provided by the private sector in either the correct quantity or at an a
20、ffordable level. Such areas include health and welfare.Traditionally the Government provides the majority of care for the elderly in the form of large long-stay institution/nursing homes. The Thatcher Conservative Government believed in the role of the free market and introduced the legislation that
21、 would introduced the legislation that would introduce market principles into welfare by closing the long stay institution and increasing the number of services-care in the community.2.7 The evaluation It is clear that the policy has proved to be more expensive than was envisaged. It is difficult to
22、 assess the amount of money needed to carry out the policies, such as, care in the community and free personal care-local authorities that may not have enough money to provide these partly due to the aging population. However, another issue arose. Once the policies were put in place, local authoriti
23、es and social workers soon discovered that there were many more people in the community entitled to these benefits than had previously claimed Government help.This problem will, in the future, be exacerbated with the decline in the population there will not be enough young people to work and provide
24、 the taxes needed to support an aging population. Another issue was that demand was outstripping supply. When free personal care was introduced, social work and health services were swamped with demand for these services.This is not the only area of public ownership. We must always remember that the
25、 role of public ownership will cover many aspects of our society:Public goodsNationalized / Government owned industries for example, BBC, Royal MailRegulation of industries for example, transport with OFGAS, OFTEL etc3. ConclusionThis report mainly writes the term market failure, and discusses the role of government in the market failure by four parts. Also talk about the UK government policy on welfare and the way or instrument to achieve this policy and give a justified evaluation for this policy.4. Reference Economic Issues: An Introduction
