HND 经济学(2) outcome3

Report for Economic Issues

Outcome 3

Name: Zhang Chen

Major: International Economic and Trade

Class: 2

Number: 20115434

Contents

1. Introduction

2. Findings

2.1 Market Failure

2.2 Public Goods

2.3 Merit Goods

2.4 Externalities

2.5 Imperfect Competition

2.6 UK Government policy on welfare

2.7 The evaluation

3. Conclusion

4. Reference

1. Introduction

My 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 government 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 UK

2. Findings

2.1 Market Failure

An economic term that encompasses a situation where, in any given 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 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. Minimum 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, creating a social cost and resulting in market failure.

2.2Public Goods

Imagine 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 the 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 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 and 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