a.List five reasons why the government may want to intervene in markets and provide an example of each.
b. Consider the market for night-time events at Bellerive Oval. To host night-time events the oval must have its large light towers switched on which shine brightly into neighbouring houses disrupting their sleep and night-time recreation
(a) Reasons of intervening government in market :
(b) Externality is the situation of costing the whole society by one/some firms and does not reduce the price of that product i.e. there is one firm in the society which through dump in the local river and pollutes the whole water therefore killing the fishes. People in that society are completely dependent on fishes because they sell fishes in the market for feeding their family. Thus that firm is creating externality here and reducing societal welfare.
In this case when stadium lights up in the night, people in the locality gets disturbed which affects their sleep. So it impacts directly the society people and reduces welfare.Cosean Theory describes the economic efficiency in the case of externality. The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. Once there is Pareto efficient equilibrium, there is no one in the economy whose welfare can be increased by reducing the welfare loss of others. Thus it helps in reducing deadweight loss.
a.List five reasons why the government may want to intervene in markets and provide an example of each. b. Consider the...