Questions and Answers Essay on Government Intervention in the Economy

Explain why economic profits are zero in the long run in a monopolistically competitive market.

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One of the key characteristics of a monopolistic competitive market is that there are no barriers to entry or exit into the market. As the new firms continue to enter into the market, in the long run, the market faces an increase in supply which makes the demand curve to shift to the left (Stackelberg et al., 2011). As more firms continue to enter, the demand curve continues to shift to a tangent point where the average costs equal to the total profits. At this point, the firms make zero economic profits since the total cost of production is equal to the total profits generated by the firm. Furthermore, the firms in a monopolistic competitive market will make normal profits in the long-run due to the increased competitive forces created by the new firms. Therefore, due to economic demerits, the economic profits are hence zero.

Explain the unique characteristics of the four primary market structures.

Within the industry, there exists four primary market structures include perfect competition, monopolistic competition, monopoly, and oligopoly market structures. Each of these structures has unique features that help in differentiating them. For example, the perfect competition market structure comprises of many firms selling homogenous products to many buyers. The customers are price takers, and there are no barriers to entry or exit in the market. In monopolistic competition, many firms are competing in the market with no barriers to entry and exit. The firms provide homogenous but differentiated products to the customers (Stackelberg et al., 2011).

A Monopoly is characterized by one seller with many buyers in the market. Firms in this industry enhance their profits by increasing the prices of the products since there is no competition as it is in other structures. There are strict barriers to entry and exit into the market, and the firms provide heterogeneous products that are not close substitutes. Lastly, an oligopoly market structure is characterized by large few firms that dominate the market (Stackelberg et al. 2011). These firms sell differentiated products, and they have a significant influence on the prices of the products. There are also significant barriers to entry and exit in the market.

What are the characteristics of a public good?

A public good refers to a commodity or service that is provided to the public by the government or private agencies without generating any profit. They are usually provided at a lower rate as compared to the market price since they are generally less costly (Singh, 2016). Public goods have two key features including non-excludability and non-rivalry. Non-rivalry indicates that the consumption of the public good does not affect the level of goods available for other consumers. For example, utilizing the street lights does not reduce the lighting available to other people.

The other feature is non-excludability which refers to the situation where it is not possible to prevent other people from accessing or consuming the public good on the basis that this good might be expensive to them. For instance, the civil defense in the United States is a non-excludable public good because once the government invests its funds in this sector; it provides security and protection to all the members of the society regardless of their contribution to the country. Moreover, no one is charged a fee to access such services, and it would be impossible to exclude a particular individual from accessing the services.

Discuss the two ways that product differentiation affects the demand for a product.

Product differentiation refers to a marketing strategy that firms utilize to distinguish their products from to those provided by competitors. It entails making the products more attractive such a way that they attract the target customers. Two ways of product differentiation affect the demand of the particular product including real and artificial product differentiation. Real product differentiation refers to the modification of the inherent feature of the product including aspects such as quality, advertising, and the price of the product (Ju et al., 2017). Consumers are often attracted by these attributes here, for instance, consumers may prefer product X which has a high quality and a lower price hence as compared to product Y. In such a case, the demand for product X increases while that of product Y decreases.

Artificial product differentiation relates to aspects such as the shape, design, packaging, and the size of the product. In this case, some consumers may prefer a product packaged in an environmentally sustainable material making the demand of this product to increase (Ju et al., 2017). More importantly, product differentiation helps create a brand loyalty of a particular product for instance product A as opposed to product B. Therefore; it increases the demand for product A while the demand for product B decreases.

Describe at least five different forms of government intervention in the economy.

Government intervention refs to any government actions that tend to cause a significant impact on the economy. Over the years, the government has introduced various government interventions that tend to regulate the economic and social statutes of the different societal groups in the country. Nevertheless, there has been growing debates that some of these interventions create additional benefits to some people as compared to other groups in society. The first government intervention is the provision of economic incentives which are offered to encourage people to follow a particular pattern of behaviors. For example, the bonus can be provided to high performing employees.

Another government intervention is pollution control which entails some environmental measures that aim at enhancing the health and welfare of the society by mitigating the risks posed by pollutants. Moral suasion is another government intervention technique where the Federal Reserve Bank persuades the commercial banks to a particular credit system with the aim of regulating the level of inflation in the economy. Another government intervention is the introduction of price floors and price limits where the government controls the prices of products to prevent the exploitation of local consumers from the sellers. Lastly, the government can provide subsidies with the aim of supporting the local firms by allowing them to export their products while increasing taxation that makes the importation of foreign products more expensive to compete in the local market.

Explain how these economic concepts currently influence the structure of the American health care system and the policy decision-making process around health.

The government also plays a significant role in regulating the American healthcare system and especially the decision making process regarding funding and government expenditure. Furthermore, the government is a significant contributor to funding the healthcare system to ensure that it has the appropriate resources to provide high quality services to its citizens. In this case, therefore, the government can also intervene to ensure that the healthcare system is streamlined in a particular direction. Also, the American healthcare system is subject to economic impacts that face other industries. For example, aspects such as financial constraint, economic crisis, customer preference, and government policies influence the operating systems developed in this sector. In such scenarios, the healthcare system makes decisions by integrating these factors to ensure that they conform to the current trends not only in the market but also regarding the statutory requirements.

References

Ju, X., Tong, L., Hu, Z., & Sun, B. (2017). Determinants and consequences of product differentiation strategy: Evidence from chinese indigenous Exporters. International Business Research, 10(9), 60. doi: 10.5539/ibr.v10n9p60

Singh, J. (2016). Quality of public goods, public policy and human development: A state-wise analysis. Indian Journal of Human Development, 10(2), 215-235. doi: 10.1177/0973703016654537

Stackelberg, H. ., Bazin, D., Urch, L., & Hill, R. (2011). Market structure and equilibrium. Berlin: Springer.