Question

1. Role of trade

- when does trade increase welfare?

- microeconomic market inefficiency

- how can the government improve welfare?

Answer 1

when does trade increase welfare?

• Trade increases welfare when it leads to fall in price of commodities.
• Trade increases competition and competition causes fall in price of goods and services.
• Now further, consumers even start getting varieties of products and these products are quality oriented.
• All these outcomes of trade increase consumer surplus and welfare.

- microeconomic market inefficiency

Micro economic market inefficiency is witnessed when market forces of demand and supply do not work appropriately. Monopolist tendencies leads to the inefficient result. Firm does not operate at the minimum point of AC and P is not equal to MC. Thus, both productive as well as allocative efficiencies are compromised here.

- how can the government improve welfare?

• Government play very critical role in furthering welfare of people.
• Government makes provision of free education and health care facilities that are inevitable for welfare of people.
• Further, government promotes and sustain infrastructure in economy.