question archive Q1) How can inefficiency occur in a perfectly competitive market? Q2
Q1) How can inefficiency occur in a perfectly competitive market? Q2
Subject:EconomicsPrice:3.86 Bought8
Q1) How can inefficiency occur in a perfectly competitive market?
Q2. Why are imperfectly competitive markets inefficient?
Q3. Where does exchange occur in an unregulated market?
Q4. Describe the differences between public and private goods and how they impact market inefficiency.
What are the causes of and ways to measure wealth and income inequality?
Q5. What is the goal of government intervention in an inefficient market?
Q6. What are the causes of externalities?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
- Inefficiency in the perfect competition market arises when the profit maximizing firm combines with a consumer who does not focus on utility maximization and therefore resulting in the quantities produced being productively and allocative inefficient. This results into a production process that has waste and therefore the choice not being in the production possibility frontier. In the long run the price is not equal to the long run average cost. This inefficiency results into reduced profits and the price does not equal to the marginal cost.
- Imperfect competitive markets are inefficient since they have market control and therefore facing negatively sloped demand curves where the price is not equal to the marginal cost. The inefficiency results from the corrective policies that the government places on them thus making the forces of demand nd supply not to operate freely thereby resulting to wastage hence inefficiency.
- The unregulated market is also called the free market. Exchange occurs at various points such as in the black markets or in voluntary exchanges. voluntary exchanges occurs within the government framework and therefore not limiting the market behavior. In the black market exchange the activity occurs without the approval of the government and therefore considered an underground operation. However, in the black market exchange there is huge constraints due to the violence that occurs between rival groups.
- Public goods are produced by the government or by nature for the purpose of increasing their welfare without any cost while private goods are produced by individuals and sold to earn profits. these two types of good contribute to market inefficiency. Public goods produce market inefficiency due to the free rider and valuation problems that are associated with them. The free rider issue results into individuals enjoying the public goods utility without taking any account for it due to the issue arising from valuation problem. On the other hand market inefficiency occurs in private goods due to the spillover effects associated with the goods. there are negative externality that arise and therefore resulting into market failure.
- Wealth and income inequality occurs due to differences in education, skills and training, experience, unemployment, job type, inheritance, pension rights and ownership of financial assets. These disparities result into certain individuals amassing more wealth than others and therefore causing a difference in their level of income. There are various methods used to measure the inequality in income and wealth. the common measure is the Gini index and the percentile or share ratios. These methods of measurements calculate the dispersion of income and therefore determining the disparity in income and wealth.
- The main goal of the government market in intervening in the inefficient markets is to address the inefficiency. The government puts in place legislations that are aimed at promoting optimality and perfect allocation of resources.
- The main cause of externalities is poorly defined property rights where there is ambiguity of ownership and the agent starts to consume more while the costs and benefits are faced by a third party.
