Question

1 . write an essay more than 1 000 words by typing which ccampare and contrast tne major
microeconomic failures and macroeconomic
failures.
for an analysis of the problems of individual
markets. analysis of problems in the aggregation
of markets.
Identify and summarize the dynamics involved in
both kinds of market failure presented.
.How are these different economic breakdowns
similar and different?
.what are the best ways to solve these economic
problems and why?
please
please answer by typing

introduction,
4 bodys and conclusion
2. please no plagiarism

Answer 1

Macro economic failure - Investment in Research and Development(R&D) -  A policy towards an increase in R&D is needed as there is a traditional market failure in private investments in R&D. The most important of the characteristics that qualify as the reason for market failures is the public good nature of information. Companies carrying out R&D incur the full costs of their efforts, but they do not capture the full benefits. This is because even with a perfectly enforced system of intellectual property rights (such as patents), there are tremendous spillover benefits to other firms. Studies have empirically analysed the remarkable degree to which inventions and innovations by one firm provide valuable information that leads to new inventions and innovations by other firms. So, firms pay the costs of their R&D but do not reap all the benefits. The existence of this positive externality of firms’ R&D, the public-good nature of the information generated by R&D — means that the private sector will carry out less than the “efficient” amount of R&D which is needed to deliver solutions for the socio-economic upliftment of the nation. Hence, other public policies are needed to address this R&D market failure. Another cause of market failure in the R&D context is the presence of positive externalities. The notion that the benefits of R&D are not limited to the firm or industry that generates innovation has attracted much attention. A positive production externality occurs when a third party gains as a result of production. However, those third parties who benefit cannot be charged, so there is only an incentive to supply to those who can be charged. Both the reasons stated above indicate a potential for Pareto improvements through Public Policy. These are situations wherein private economic activity may not lead to Pareto efficiency.

Microeconomic failure- The optimum amount of education for individuals. The reason for market failure in education is manifold. Firstly, education is a “public good”. Economists have given elaborate theories on the under provisioning of a public good in a free market based on a notion of high demand and low supply as it is a classic case of a market failure. Secondly, education has various “externalities” or spillovers associated with its consumption. So a person acquiring basic education not only benefits himself but also the society at large. There are positive outcomes which benefit the community which is not taken into account while arriving at equilibrium level of education through demand and supply factors. As such the concept of externalities also explains the inefficiency of free markets in achieving the desired level of educational outcomes. Thirdly, education is also a “merit good”, consumption of which needs to be promoted. The above characteristics of education as a consumption good explain the microeconomic market failure in the education market. Even the staunch supporters of free market acknowledge that in case of market failure, self-regulating tendencies cannot lead to a Pareto optimal outcome. An intervention of the government is called for to correct the market asymmetry and work in the direction of social welfare.