Question

[Microeconomics]

Briefly describe the microeconomics role of government. Focus on economic efficiency arguments rather than personal judgments of equity.

Be sure to mention the role of market failures, short answer reply should be at least 4-7 paragraphs in length.

Answer 1

Government policy has microeconomic consequences as it changes the inputs and opportunities for individual economic decisions. Such reforms take several forms, including tax policy, monetary policy, rules, tariffs, incentives, tendering laws, licensing and public-private partnerships (to name a few). Such strategies exploit the costs and benefits that individual actors face in almost every aspect of everyday life.

The impacts of government policy are sometimes intentional. The government could provide subsidies to farmers to make their businesses more profitable and to encourage agricultural production. Conversely, the government may impose a tax on cigarettes and alcohol to discourage actions that it does not approve of. Certain effects are unintended.Governments may also alter markets when they decide to invest their money. Any person or company that receives government funds will, in turn, receive a transfer of wealth from every other taxpayer. If a company receives a subsidy from the government, it must operate at a higher cost curve than is possible without the grant. All other actors who might have received these funds (not for taxation and subsidies) have correspondingly less income or income.

The government is trying to respond to market failures to distribute capital efficiently. In a given market, productivity means that the quantity produced is calculated by the intersection of a demand curve that represents all the advantages of buying a specific product or service and by a supply curve that represents the opportunity cost of producing it. Government agencies are acting to encourage or discourage the consumption of certain goods and services. The prohibition of drugs such as heroin and cocaine is an example of a government that seeks to discourage the use of these drugs.the government is redistributing income through programs such as welfare and social security. The government can use its spending and tax policies to influence the level of economic activity and the level of prices.