Question

Hi, there is a few short questions related to Canadian economics. Please answer them thank you.

1.a) Economists often say things like if the prices are right, people will respond correctly."
What exactly do they mean by this? What do they mean here by `right' and `correctly?'
b) The federal government keeps writing cheques to provinces for health care. Is financing
really the problem? If it is, why don't provinces just raise their tax rates?
c) Why do we have different levels of government? Should we abolish provinces?
d) Can a state provide too much? Can it provide the right amount of goods, but still do
a bad job?
e) What does `increasing returns to scale' mean? What are some examples of production
technologies with increasing returns to scale? Do you observe private-sector monopolies
in these markets?

Answer 1

1. (a) This means that if the products are priced at their value they hold then there will be no problem for the consumer to buy them. Here right means that the prices should be justifiable to the value of the product and correctly means in a good way or say, people would buy them.

(b) Yes, financing is big problem which all the countries and governments have to face and are facing.

Taxation on goods, income, or wealth influence economic behaviour and the distribution of resources.

• For example, higher taxes on carbon emissions will increase costs for producers, reduce demand and shift demand towards alternatives.
• Higher-income tax can enable redistribution of income within society but may have an impact on reducing the incentives to work and supply labour.

So, the tax cannot be raised.

(c) Just like people, communities have basic needs that must be met. Imagine what it would be like if there were nobody to make sure that laws were obeyed if there were nobody to help look after the sick and elderly, or to plan where buildings should go, and to keep the environment clean and safe. Each level of government is responsible for providing services and they each raise money through taxes or charges to pay for those services. Each level may be fully responsible for providing certain services, but often two or three levels of government share responsibilities. Hence we cannot abolish the provinces otherwise it will create chaos and dictatorship.

(d) Yes, a state in some cases can provide too much due to its resourcefulness. And sometimes yes a state can provide the right amount of goods and can do badly due to comparison and not utilising its resources to the best of their use.