Government's Involvement or Role in the Marketplace - Managerial Essay

Government's Involvement or Role in the Marketplace - Managerial Economics - Essay Example Economists often assume that markets are perfectly competitive and that all information necessary to make rational decisions is available. . But this is not always true. Sometimes the market is far from being competitive, there is lack of adequate information for participants, and a single buyer or seller, or a small group of buyers and sellers, may be able to control market prices. This power exercised by monopolists and oligopolists is called market power. Market power can cause markets to be inefficient, keeping price and quantity away from the supply-and-demand equilibrium (Mankiw, 1998; Samuelson and Marks, 1995). There are instances when society as a whole is not well served; therefore, it is incumbent on the government to intervene, usually for two reasons: to promote efficiency (enlarging the economic pie), and to promote equity (ensuring a better division of the pie). To make their analysis simple, economists often assume that market outcomes matter only to the buyers and sellers, but in real life decisions by market participants sometimes affect people who had nothing to do with the market at all. Such side effects, called externalities, cause welfare to hinge on more than just values and costs when buyers and sellers decide how much to consume and produce, thus the market equilibrium can become inefficient from the viewpoint of society as a whole. Market power and externalities are what constitute market failure – which means that the market, unregulated and left on its own, fails to allocate resources efficiently. When markets fail, public policy may be able to provide a remedy to the problem situation and perhaps increase economic efficiency. The government intervenes in the hope of improving market outcomes. However, it is by no means certain that government intervention can improve the state of

Microeconomices Term Paper Example | Topics and Well Written Essays - 1500 words - 1

Microeconomices - Term Paper Example f individuals, firms, and industries in terms of producing and consuming of economic goods and services, the concept of cost is relevant as it affects microeconomic activities of the units concerned. For consumers and individuals who are not familiar with the concepts of costs, one might have the tendency to discard this as irrelevant and immaterial. However, close examination of these underlying theories would enlighten consumers on their effects on prices and quantities of goods which are normally offered to the public. It is therefore the objective of this essay to present relevant concepts, theories and applications concerning costs in microeconomics. The costs to be discussed range from opportunity cost, production costs, marginal cost, cost of externalities, the law of diminishing returns and economies of scale. It is interesting to note that in economics, all costs are considered opportunity costs. As rationalized by Petroff (par. 2), â€Å"anytime a resource is used for any purpose, it implies that some other good cannot be produced with that quantity of the resource, that some other resource is not used for the given production instead, and that revenues from other production are foregone. Thus, costs are either explicit cost for the resource used or implicit costs from alternative use of the resource.† To use a practical application, for a consumer who decided to buy a television set, the opportunity cost could be the value of a trip to a nearby beach resort which was not taken due to the purchase. Productions costs are normally related to firms or business enterprises engaged in manufacturing or producing goods for sale to the public. The concept of productions costs are not only discussed in microeconomics but more so in accounting or finance. Production managers are tasked with monitoring the costs of raw materials as well as labor and overhead costs to maximize profits. These costs could be classified as fixed, variable and total costs. Petroff