Health economics, market structures, government interventions - Assignment Example

?ANSWERS FOR ECONOMICS QUESTIONS ANSWER Market as a whole is divided into four forms of structures based on the characteristics. These four marketstructures include perfect competition, monopolistic competition, oligopoly and monopoly. The distinct characteristics of each market structure are defined as follows (Froyen, 2009): PERFECT COMPETITION: Many firms offer similar product. Due to large number of firms in industry, the firms are forced to accept prices set by demand and supply in the market. Structure does not create barrier for entry and exit to market. Organizations to gain profits perform with high efficiency and innovation level in offerings is lowest. MONOPOLISTIC: Share the feature of monopoly and perfect competition. Similar purpose products are differentiated by many firms operating in market. Low entry and exit barriers welcomes new participants with high profits in short run. Participants gain profits various innovations in products. OLIGOPOLY: Market is based on few dominant firms offering similar but high level of differentiated products with innovation. Firms with dominance create barrier to entry exist with extensive control over price. Despite control of firms, prices are dependent on peer firms’ decision in market. MONOPOLY: Only one firm provides goods and services. Least differentiated product but control over price is enjoyed by the firm. Industry has high level of barrier to enter and exit from market. Profits are enjoyed by firm with constantly increasing economies of scale. ANSWER #2 The monopolistic competition is a type of competition that share features of two extreme types of competition being perfect competition and monopoly. Many firms are present like perfect competition while products are differentiated like monopoly form of market structures such as movies etc. In short run monopolistic industry gets attractive by offering positive profits to participant firms and new firms enter to the market in long run. It is also due to due to no to low barrier of entry and exit in the market like perfect competition. Prices continue to increase over marginal cost in similar fashion as in case of monopoly competition. Profit maximization in monopolistically competitive market requires marginal revenue to equate marginal cost while downward slope of the demand curve takes marginal revenue lower than price. Also entry of new firm results in increased supply of differentiated products resulting in shift in the demand curve. Sharing the feature of perfect competition, price is determined at point equal to average total cost. This price is similar point where demand curve is tangent to average total cost. At this point industry offers zero economic profits and hence does not attract new participants due to zero economic profits (Gartner, 2009). ANSWER #3 Public goods are defined as set of goods having following two distinct characteristics of non-excludability and non-rival consumption. Non-excludability feature refers to the fact that usage or benefit of public goods gained by certain peoples does not result in prevention of its benefits offered to others. Non-rival consumption features of public goods refer that irrespective of consumption of public goods by certain people availability of amount or level of benefit to others is not reduced. These feature contrast public goods from the private goods. The example of public goods includes services of disaster management cells managed by government, roads and street lights etc. The feature of non- excludability results in facilitation of products to all even those who bear no financial cost. All financial cost bearers and non-bearers enjoy equal benefit of public goods irrespective of tastes and preferences and diminishing value. Such facilitation results in free-riders problem in economy. People gains confidence of availability of the goods even without paying for and hence tend to adopt trend of not paying for such services. This trend presses the increased burden on payer of such facilities. Such features of public goods and resulting problem of free riders outcome in under provision of public goods by private firm (Leamer, 2009). ANSWER #4 Demand of the products is dependent on large number of factors such as prices, consumer preferences like tastes, income of consumers and so on so forth. Business in order generate attractive profits attempt to differentiate their product from competitors. Differentiated products refer to the set of attributes offered by the particular products in way that is not offered by the product of any other competitor. Differentiation is created even in goods and service serving similar purpose with tangible or even imaginary traits. For example, goods differentiated with attaching emotional traits of customers etc. Differentiated product attracts limited segment of customers from the whole market due to highlighted attributes satisfying their needs only. Further, differentiation in the products and services provides business certain control over price. These two factors dominantly affect the demand of the product in market. Higher price (even small magnitude than competitors facilitating similar purpose product or service) due to differentiation affects customers purchasing capacity. This includes as well as excludes certain customers’ demand from the total quantity demanded for the product. Similarly, highlighting or adding certain feature to the product attracts limited number of customers with specific tastes and preference among the entire set of customers in market. Hence, differentiation of products affects its demand in market (Mankiw, 2009). ANSWER #5 Governments constantly intervene in the market to ensure the smoothly growing performance of economy. Equitable distribution of wealth as well as correcting the market failure is also an important aim for which government intervenes in the market. For different purposes different ways of interventions are adopted. Some forms of intervention are mentioned below (Mankiw, 2009): Government intervenes by producing goods and services that are not traded in the market such as infrastructure etc. For equitable income distribution both horizontally and vertically it takes measures such as taxing some people while offering subsidies on certain classes. Furthermore, it offers tax reliefs to increase the economic activity in certain areas such as industrialization etc. Government also intervenes in the market for meeting the information needs of the consumers. Instances where cost and benefit information of products are necessary consumers are facilitated by government. For example, government sponsored advertisements for certain vaccination campaign etc. Government even in the free economy also maintains control over business with different policies such as labor law, competition policy etc. To control the demand of product or service in the economy fiscal policy measures based intervention is taken by the government. Such interventions include increasing level of taxes and duties on certain products and services etc. References Froyen, R. (2009). Macroeconomics: Theories and Policies, (ninth edition). New York: Pearson, Gartner, M. (2009). Macroeconomics, 3rd edition.  Harlow: FT Prentice Hall Leamer, E. (2009). Macroeconomic Patterns and Stories. Heidelberg: Springer-Verlag Berlin Heidelberg. Mankiw, G. (2009). Principles of Economics. Mason, OH: South-Western Cengage Learning. Read More