Question

1. How does a tariff affect the welfare of a consumer?

2. What is a negative externality? What is one way that government can reduce it?

3. What is a monopolist's main objective?

4. What are the characteristics of a perfectly competitive market?

Answer 1

1. The government of every country always tries to encourage their domestic producers and always want them to grow. The government also tries to decrease the competition faced by the domestic firms from the firms coming from other countries and for this, the government plans various policies that can attract the consumers of the country to buy the goods that are produced by the domestic producers. One of the techniques used by the government is applying tariffs on the goods that are being produced outside the country. However, this creates problems for the consumers of the country as the prices of the goods in the market increases as the consumers have to pay the additional charges imposed by the government on the imported goods. The domestic producers also increase the prices of the goods as the goods produced domestically automatically become cheaper than the goods produced abroad.
2. Negative externality is the negative impacts faced by the people because of the production process of any firm or entity. It is the problems and inconvenience that the people have to face by the activities of various firms.
The government of the country should implement some policies to control the negative externality coming mainly from the industrial sector. One way to reduce it should be that the government should discourage the activities done by various firms that produce various kinds of negative externalities by applying taxes on the goods that require the activities that should be discouraged.
3. Monopoly is a type of market in which the firm has to face no competition from any other firm and also the firm is free to decide the prices of the goods as there is no other firm in the market that can influence the prices of the firm. So, every monopolist just focuses on only one objective and that is to earn a high amount of returns so the monopolist can earn high profits as there is no other firm in the market competing to earn profits or to be more successful.
4. As the name suggests a perfectly competitive market is the one in which firms have to compete against other firms that are equally focused to work in the market. Some of the features that one can find in a perfectly competitive market are that all the competitors in the market are trying to sell the goods that have the same characteristics and the customers they are trying to convince have the complete information about the product they want to buy. Also, no firm in this type of market can influence or force any other firm to leave or to join the competition in the market.