Competitive Markets Monopolies A Oligopolies

Competitive Markets, Monopolies & Oligopolies

Role of federal government:

The role of the government in the competitive market is to eliminate negative externalities, the government which also ensures that there is free entry and exit into a competitive market industry. On the hand there exist monopolies in the market that are financed by the government and the reason for this is to provide goods that may be too expensive to provide. The government will however in most cases encourage competition whereby competition results into optimal pricing in the economy.

Example:

The government will eliminate negative externalities through taxation. Example in the competitive market the government will tax industries that degrade the environment through pollution. On the other hand the government will maintain monopolies whereby the cost of producing certain products are too expensive example the rail way industry.

My view:

When negative externalities occur the government has a role to play in resolving the problem example pollution, the government also has a role to play in maintaining a competitive market in the economy and eliminate monopolies and oligopolies in order to achieve optimal pricing of goods and services in the economy.

Competitive Markets, Monopolies & Oligopolies

Earnings and Income Discrimination

Role of federal government:

Income discrimination occurs when there are wage differences that are as a result of differences in ethnicity, gender, age and race, the government role is to eliminate wage discrimination through the implementation of policies, the existence of competitive markets also eliminate the problem of income distribution and therefore the government will encourage competition in order to eliminate income discrimination.

Example:

An example of income discrimination in the US is that studies show that whites are paid higher wage rates than other races in the US. The role of the government in this case is to encourage competition and implementation of policies that discourage discrimination.

My view:

This policy measure is appropriate given that income discrimination leads to the marginalization of certain groups. Therefore the government has a role to play in eliminating income discrimination through implementation of policies and encouraging competition.

Income Inequality & Poverty

Competitive Markets, Monopolies & Oligopolies

Role of federal government:

The role of the government is to reduce income inequality and also reduce poverty. The government policy measures the provision of education and employment to marginalized individuals. Income taxes on the other hand are progressive in nature and therefore help solve the problem of income inequality.

Example:

An example is where the government will eliminate poverty and income inequality through the introduction of progressive income taxes, this occurs when higher income levels are taxed more than low income.

My view:

In my own view income inequality and poverty policies should not be applied in the economy, the government’s role should be to provide public goods and through introduction of policies that affect high income earners negatively impact on the competitive market and capitalism.

Why the government cares about GDP and CPI

Role of federal government:

With reference to GDP the government will undertake measure in order to increase the level of

Competitive Markets, Monopolies & Oligopolies

GDP, the GDP level in an economy is an important measure of employment of resources in the economy and therefore increasing the level of GDP will be as a result of increased use of resources. On the other hand the CPI is an important measure of inflation in the economy. Inflation refers to increase in prices over a period of time, this increase in prices results into an increase in prices of other goods and services

Example:

For example during a recession the level of GDP decline and the roles of the government is to implement policy measures that encourage investments and at the same time increase employment levels, on the other hand when there is inflation reflected by the CPI the government will increase interest rates and reduce money supply.

My view:

Policy measures to increase GPI and reduce inflation sometimes will negatively impact the economy. Policy measure may be influenced by the political environment and also due to lag issues whereby it takes time for policy measures to impact the economy.

Fiscal Policy

Role of federal government:

Fiscal policies include government spending and taxation, government spending is undertaken to increase employment in the economy ands also to provide public goods. Taxation is applied when there are negative externalities, to protect industries and also to finance government

Competitive Markets, Monopolies & Oligopolies

spending.

Example:

In an economic recession the government will increase government spending and this increases employment in the economy, taxation will also be applied to protect local industries in the case where imports are relatively cheaper than locally produced goods, the government will protect the local industries through import tariffs.

My view:

Fiscal policies should be applied in the economy given that they lead to increased employment and also protect local infant industries.

REFERENCE:

Hardwick, P. (2002) Introduction to modern economics, New York: McGraw Hill Press.