Question

What is your understanding of the role of government in mitigating market failure?

Do you think it is the best remedy for the nation and the economy to allow government to manage the economy in this way? Why or why not?

Answer 1

By passing restrictive trade practice legislation and anti-monopoly laws, the government can control a monopoly power in the market. Such rules are aimed at reducing unfair market competition, avoiding iniquitous price discrimination and fixing prices equal to competitive prices The government can also de-escalate all rates for monopolies to a competitive level through taxation and market control. Governments may impose a price ceiling to bring down the prices of monopolies to a competitive price close or equal to. This is usually achieved by setting up a commission, below the monopoly price, which sets the price of a monopoly product or service

In all situations, the government should intervene with an external production disease system to remove any disparity between social and private costs and benefits. In that case the government can ask the business owner to move out of the residential area by extending suitable facilities to a smoke-emitting workshop. He said the government could end noise pollution in the event of any external consumer illness by banning loudspeakers, except in specific hours with prior permission during a special occasion.

The government will impose a tax on every family living in an area, and thus collect the entire amount to pay the factory emitting smoke to relocate. Subventions and taxes can thus help bridge the gap between the government and private costs and benefits.