KTCC407.

2_[28/10/2021]_Phan Thảo Huyền_1911150504

Q1. When government should intervene in the market economy?
- Market failure may justify additional government intervention.
- Government intervention also motivated by
+  inequality of income
+  inequality of opportunity
+ inequality of wealth.

Q2. How government could do?

- Using the price mechanism with taxes ors ubsidies. The government can directly restrict
the private sale or purchase of goods that are overproduced.
- Mandate that either individuals or firms provide the good. The government can mandate
the private purchase of goods that are under produced and force individuals to buy that
good.
- Public Provision: The government can provide the good directly, in order to potentially
attain the level of consumption that maximizes social welfare.
- Public Financing of Private Provision:
+ Governments may want to influence the level of consumption but may not want to
directly involve themselves in the provision of a good.
+ Medicare prescription drug cards, where private companies administer the drug
insurance.

Q3. What effects of the government intervention to the market economy

(direct/indirect effects, positive/negative effects, effects to sellers/buyers)
- Direct effects of government actions assume “no behavioral responses” and examine the
intended consequences of those actions.
- Indirect effects arise because some people change their behavior in response to an
intervention. This is sometimes called the “law of unintended consequences.”
Q4. Why government intervenes by this policy but not other policies?
- Governments do not simply behave as benign actors who intervene only because of
market failure and redistribution. Just as market failures can lead to market inefficiency,
there are a host of government failures that lead to inappropriate government
intervention. Tools of political economy helps us understand how governments make
public policy decisions.
Public policy is best described as the broad area of government laws, regulations, court
decisions, and local ordinances.
Many citizens and groups try to influence public policy through the political process by
supporting candidates and political parties. That's a good way to make a positive impact,
but not the best way.
Politicians and political parties come and go. Their positions on issues can change due to
circumstances. They can be voted out of power as easily as they are voted in.
The best way to make a lasting impact on public policy is to change public opinion.
When you change the beliefs of the people, politicians and political parties change with
them. Public policies are based on law, but many people other than legislators set them.

Q5. What is market failure? What is government failure and what are the causes of
these failures?
- Market failure arises when efficiency is not achieved.
- Sources of market failure:
+ monopoly
+ public goods
+ externalities
+ asymmetric information
- Market failure may justify additional government intervention
+ It must be tested whether intervention is beneficial
+ government cannot always improve upon the unregulated economy
- Government failure refers to situations where allocative efficiency may have been
reduced following government intervention in markets designed to correct market failure.
- Government failure if Asymmetric information
Imperfect information:
+ Lack of knowledge of:
* Prices
* Value
* Costs
* Benefits
* Long term effects
* Behavioural changes
* External costs and benefits
* Value of producer and consumer surplus
=> all mean less than efficient allocation may result from government intervention.
- Government failure if there is own interest