The paper "Management Economics Issues" is an outstanding example of a micro and macroeconomic assignment. The paper is composed of answers to assignments on the course Economics for Management. The assignment is done based on class lecture notes provided in slides form. Some questions required an opinion that was stated in the first line of the answer followed by an explanation of the same. Comments are based on underlying principles as required by the particular question. Management economics aims at providing the best information for the purpose of macroeconomic decisions.
This paper uses the provided information from the questions to provide an opinion on the same. Question 1: Positive Externalities. Government intervention is necessary when positive externalities are present. Positive externality, in this case, refers to the benefits that accrue to third parties as a result of an economic transaction for which they contributed nothing in terms of input. The existence of such a phenomenon and merit goods and services is a justification for the government’ s intervention. Government involvement ensures not only market efficiency but also equitable resource distribution. Third-party beneficiaries and individuals, in that regard, referred to as free-riders could naturally look to monopolize the resulting benefits, thus the need for government intervention. It is the role of governments to develop, promote and implement policies that encourage positive externalities.
To do so, most authorities in a free market economy apply two basic approaches that are influenced by equilibrium-seeking market forces i. e. Increasing the supply of merit goods and services; healthcare, education and transportation logistics are just but examples of services that benefit all in society. Increasing the demand for goods and services that create widespread external benefits. Increasing Supply It is mainly achieved by reducing the production costs incurred by producers of goods that generate positive externalities.
Governments around the world make it through grants and subsidies to the said producers. The purpose of the subsidy is to increase the marginal benefit obtained from consuming an additional unit of the good. In turn, the supply of merit goods such as healthcare and education increases and governments fund them through taxation.
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