Question

Our fourth MobLab Experiment allows us to experience how a well functioning market operates in the "real world" (well, kinda real) with the added wrinkle of government intervention (taxes!)

I would like you to reflect on your MobLab experience back to the concepts covered in Chapter 8 "Application: The Costs of Taxation".

The purpose of this reflection is to demonstrate your ability to link the concepts of supply and demand to a "real world" application in light of government intervention.

Answer 1

government interventions such as economic policies, taxation, rules & regulations, etc. actions are carried out with the main motive to effect economy of a country because concept of supply and demand will not work alone.

in a free market where supply and demand maintain its equilibrium naturally but its not a long term solution such as drought, depression, stock market crash, etc. that's why government interventions are important:

1. keynesian theory during the great depression: introduction of fiscal and monetary policies which helps in improving market condition.

2. government interventions such as taxation helps in preventing imperfect competition .

3. without intervention will leads to monopoly in the market and only small part of market will earn all the profits.

4. social welfare and maintaining equilibrium

5. preventing market from inflation and recession.

in other hand government intervention can be effect negatively and purely political intervention which can cause hindrance in market.

for example: price ceiling done by government to set price of commodity in affordable range so that company do not exploit consumers but sometimes can lead to supply shortage if price sets less than economic price.