Question

1. What is deadweight loss and how does it impact consumer consumption, and government public planning? 2. Explain economic efficiency, wealth transfers, and cost-benefit analysis in relation to government regulation. 3. Describe the three types of market failures due to monopoly, externalities, and imperfect information. 4.In each of the following situations, explain whether an externality is present. In your answer, address how government intervention is involved. -Mine safety has improved in recent years. Nonetheless, mining accidents result in 50 to 100 deaths per year and thousands of lost work days due to injury. -Large brokerage and financial service companies conduct intensive introductory training programs for new hires, many of whom, once trained, leave the company within the first year to work for competitors. -The volume of email spam has grown exponentially in the last five years. -A husband and wife who have put off buying a house suddenly find themselves priced out of the market by rocketing real-estate prices. 5. Suppose Coca-Cola and Pepsi were to announce plans to merge into a single global soft-drink company. What would be the possible effects on soft-drink consumers? What kind of regulatory scrutiny should the U.S. government cast on the proposed merger?

Answer 1

Solution 1

Dead weight loss is excessburden or loss of economic efficiency which occurs when equilibrium for goods or services are not achieved. This results in improper adjusted government planning and uncertainty of consumer behaviour also affects marketing strategies of firms and can lead to consumer switching to another firm. This is caused by imposing heavy tax which decreases consumption of that good.

Solution 2

1. Economic efficiency is optimal allocation and utilisation of resources to satisfy changing consumers preference where government allots right resources to right set of people.
2. Wealth transfer takes place when governments transfer their wealth to certain set of societies for example granting scholarships to economically backward classes.
3. Cost benefit analysis is systematic approach to identify strengths and weakness where government evaluate project haaed on cost incurred and benefits driven to public.

Solution 3

Due to monopoly, Monopolistic power market failure is resulted causing higher prices for consumers.

Due to Externalities , there can be positive or negative market failure which results in benefits to 3rd party and cost to 3rd party respectively

Due to imperfect information,, it results into information failure and consumers cannot make right choices.

Solution 4

1. Mine injuries will results in negative Externalities and hence government have to propose HSW i.e health safety works audit.
2. Training employees will result in positive externalities to competitors, hence government must induce mandatory clause of 6month training period where employees cant leave.
3. Exponential volumes of email dont cause any Externalities and government intervention as such not required.
4. Real estate prices lead to negative Externalities and government intervention is must where strict audit on computation of prices as per market rates and audit of projects becomes mandatory.

Solution 5

Coca cola Pepsi merger can tend to create monopoly or duopoly in market due to high market shares of both companies and may breach Sherman Act of Anti Trust laws and Federal Trade Act where prices may be rigged or fixed higher in future due to market strength .

Consumers however will get wide variety of choices and accessibility albeit at higher prices due to monopolistic market structure .