Question

Consider 3 policies described below. In each case , explain what market failure, if any, the policy addresses.. Does this policy stimulate the growth? Whose interests are served by it? Is this policy an example of government failure?

(a)) Ontario's minimum wage jumped from $111.60 to $114 an hour at the start of 2018..

(b)) Every year,, Toronto Public Health provides free vaccination to Grade 7 students in the schools.. The three vaccines are::

• Meningococcal ( mandatory for school attendance )

• Human papillomavirus (HHPV))

• Hepatitis B

(c)) Canadian student attending the University for a four - year BA program and living at home with parents earning $550,000 a year under the current system would receive grants large enough to cover almost all the tuition

Answer 1

a). Yes, this indicates a market failure. This is because an increase in wage rates reduces the profitability of the supplier and thus reduces producer surplus. No, this policy does not stimulate growth. The interest of the poor people is served by it. Yes, this is an example of govt. failure because the govt. is not able to provide adequate jobs to its people which helps them earn sufficient income levels. Thus, the government has decided to increase minimum wage levels.

b). Yes, this is a market failure as this is a public good. Yes, this policy stimulates growth because healthy children mean better investment in human capital and thus better future economic growth. The interest of the entire society is served by it. No, this policy is not a govt. failure but is, in fact, a govt. success.

c). This is a market failure because the govt. is entering the free market of the education system. This This is in the interest of the students whose tuition fee is being paid. This does not necessarily stimulate economic growth because the income of the parents of $550,000 is already too high that they can pay for their child's tuition fee. And thus, the govt. is not really helping the ones who actually are in need of them, and is purely wasting it on even the ones who don't really need the govt.'s financial support.