Week Nine Workshop Questions – 3203THS Tourism and Hospitality Economic Analysis

Student Name: Xia YANG Student number: s5078560

Workshop Questions

1. Explain (not list) the benefits of free markets?

Free markets are where the productions and sale of goods/services are promoted with little to no
control or involvement from any central government agency. The benefits of free market include:
economic efficiency, allocative efficiency, consumer sovereignty and economic growth.

Economy efficiency: as free markets are very competitive, firms would likely to maximise its
profit by using most economical method of product (for example, new technology and
change supplier) to minimise its output.
 Allocative efficiency: the resources in a free market are better distributed and allocated.
Goods or services are produced according to consumer’s preferences, producers are willing
to pay for a certain amount of products. Otherwise, producers will produce too many things
that cannot be sold. (apple, Samsung are the more successful phone companies as they
make the phone that people want to buy.
 Consumer sovereignty: in a free market, producer produce goods or services based on what
consumers want at a reasonable price. Therefore, consumers are given more choices for
their purchase.
 Economic growth: Free markets drives economic growth. To maximise profits, resources are
effectively used by profitable firms. Profitable firms will be seeking for opportunities to use
resources to a great extent. Therefore, unprofitable firms will be eliminated.
2. What are the criticisms of free markets?

The criticisms of the free markets are:

 Perfect market assumption: free market technically involves in perfect knowledge on

products, rational consumers and producers and identical products. However, these are not
realistic assumptions in reality.
 Consumer sovereignty: consumers are given more choices in a free market. However, as
consumers, they do not have perfect information on every products and lack of
comprehension of technical information to compare different products effectively.
Consumers are easily influenced by persuasive advertising.
 Equity issues: in a free market, wealth has strong impact on consumer’s purchase power.
Individuals who have more money would have more power among the market (e.g. more
money to buy more products and services). In turn, compare with wealthy people, poorer
people would not have power or access to the products and services over the market.
 Externalities refers to the costs incurred or received by third party (have no control). As
there is free entry and exist in free market, firms do not have control over the externalities
caused by their actions. For example: social costs, pollution and environmental costs.
 Public goods, merit goods & demerit goods
3. Give an example of public goods, merits goods and demerit goods. Try to think of examples
that are important in the tourism/ hospitality / leisure sector.
 Public goods: is the goods that are used by the society (public) which the users do not need
pay. For example: signage on highway to Dreamworld.
 Merits goods: can be provided by private sector and involves in social benefits. For example:
museums have educational benefits to tourists.
 Demerits goods: has negative impact which can have short-term personal benefits but social
costs in long-term. For example: over-produced alcohol in a restaurant would cause health
costs to individuals and social costs to the public (e.g. crime). Fossil fuel based transport.
4. Describe the five forms of market intervention.
 Central planning: the production is controlled by the government planning teams instead of
private sector. Communist and socialist systems are the most noteworthy examples in which
governments control the factors of production. (The government set up the prices and the
amount of goods will be produced, so it can focus labour and resources on industries and
projects without investment from private sectors).
 Control of monopolies and mergers: the regulations/control of monopolies protect the
interests of consumers. For example, the monopoly market can set up its prices higher than
its competitors. The government can regulate these markets through price capping to
prevent the growth of monopoly power.
 Laws, planning controls and permits: are legal documents giving permission by all levels of
government. For example: federal government regulates anti-drug laws; state government
regulate gambling and service of alcohol; local government regulates advertising signage and
business location. (RSA – the permission of alcohol)
 Taxes and subsidies: are used to encourage the consumption of merit goods and discourage
demerit goods. Subsidies can be used for welfare programs (e.g. water-saving program and
art conservation and restoration). Taxes can be used to constraint the supply of demerit
goods such as alcohol and cigarettes).
 Public provisions are provided to promote general welfare of the people, such as local
leisure facilities (art centre) and public transportation (G-link)

Exceed demand refers to producer cannot provide It is market failure as

Reflection

Please identify any concepts you would like further explanation of in next week’s lecture.
I would like to have a further explanation of the concept and norms of market intervention.