TOPIC: FOR GRADE 12B A2
Time Duration for submitting the Article is
April 8th to 14th, 2013
Governments, unlike the private sector, can create some of the necessary conditions for the efficient allocation of resources. It is, therefore, best if there is as much government involvement in the economy as possible.’
Discuss whether you agree with this opinion. [25]
Write your opinion here in 500 Words. [20 Marks]
"Marks allocation will be in accordance to the Rubrics"
Note: I will give zero if your writing are not in accordance to the rubrics mentioned.
Allocative efficieny is a type of economic efficiency in which the producers only produce types of goods that and services that the society wants and also high in demand. This is when the marginal benefit is equal to the marginal cost. This is when the social surplus is maximized with no deadweight loss. Monopoly, oligopoly, monopsony, externalities are not efficient. Allocative efficiency is used to measure the impact of markets and public policy among the society. Public sector organization is one, which owned or controlled by the government. Both public sector and private sector can produce profit. But, public sector tend not to have profit. While private sector organization is owned or controlled by the firms. Their main goal is to produce profit as much as possible. Government used to provide facilities that will be a profit for the society, so the external benefit is more than the private benefit. Poor society is more profitable because they can enjoy the facilities free or cheaper.
ReplyDeleteThere is called a free rider problem means that people who receive the benefits from consuming a good or service, without having to pay for it. Since everyone have benefits from public goods, private firms will not produce them. Government has to produce the entire supply of public goods in the country. Resources are efficiently allocated and welfare society is maximized if as many people as possible consume public goods. Charging for the consumption of public goods may discourage some people from consuming them and will lead to an inefficient allocation of resources and less than optimal welfare to society. Due to lower profit get by the firm, the result will be less wages, fewer positions available for the worker to choose. Merit goods can be priced in the market and are largely produced by private firms but government has to step in to produce the short fall in the quantities of merit goods supplied by private firms. Even though private firms produced goods, they’ll produce but in inadequate quantities. Government should also provide some quantities of merit goods to meet the shortfall in the quantities produced by private firm so as to attain more efficient allocation of resources and maximum social welfare. Private firms have greater flexibility and easier in choosing what type of job, higher wages due to more profit get by the firms. Government will somehow “encourage” the competition between firms or industries to attain productive efficiency.
Government’s economic activity should be restricted to the provision of public goods are less. So, government should provide all the public goods but for the economic activity of the government could also extend to the provision of merit goods and the production of private goods. However, it’s good that government encourage private firms to produce all the merit goods with incentives like subsidies and tax rebates and retrain the production of private goods to enable the market mechanism to work freely about allocative efficiency in the use of resources.
Wilson:
ReplyDeleteGovernment measures total output of a country in order to assess the performance of the economy. Total output of a country is equal to the total income and total expenditure. When output is growing at high and sustainable rate, an economy is likely to be doing well. Government uses a variety of measures of the country's output. These are known as national income statistic. The most popular measure of national income is GDP (Gross Domestic Products). Gross means total, Domestic means home economy and Product means output by factors of production (land, labour, capital and enterprise). Together it become the total product produced at home economy.
Government's main objectives are to restrore economic efficiency (try to move the market to a more efficient position through policies) and egalitarian of society (equity). Should high growth rate in GDP be the next objectives?
Money GDP sometimes give a misleading impression of how well a country is performing. Value of money GDP may rise not because more goods and services are being produced in the market but because the price have risen. For example, a country is producing 10,000 units of Handphone at which $200 per unit. The money GDP is $2,000,000. The next year, price of handphone change into $350 per unit. Now the money GDP is $3,500,000. In this case, the money GDP has increase but the performance of the country is not changing from last year. To tackle this, economist convert money into real GDP by measuring GDP at constant prices, that its at the prices operating in a selected base year. This is to remove the effect of inflation.
However, real GDP may understate the true change in output. This is due to the existence of hidden, informal, or underground economy. Those are undeclared economic activity. There are various reasons not to declare their earned income: to evade paying taxes and the activity is itself illegal (for example: smuggling goods). Size of hidden economy can be found by measuring the gap between GDP calculated by expenditure and income methods. This is because people will be spending income they have not declared. Hidden economy influenced by rates of taxation, penalties due to illegal activity and risk of being caught and social attitudes towads illegal activities. Comparison of GDP among countries become difficult because size of hidden economy varies.
There are some other imperfections in the GDP figures that it may not provide accurate measure of output and changes in output. These are due to low level of literacy (government find it hard to gather information about all economic activity because some people unable to fill out tax forms), non-marketed goods and services (this is famous for the case of farmers who produce for self-consumption) and difficulties to measure government spending. These all made the GDP figures seems very low, guessworks should be made for non-marketed goods and services as GDP figures only include marketed goods and services. Government spending is difficult to measure because some goods and services are not sold such as national defence, fire service, etc.
Last but not least, GPD is not showing the real standard of living because there are income inequalities. For people with high income level, household expenditure is very high compare to the poor one. GDP is only showing the average and not showing real standard of living of a person. In the case of UEA (United Emirates Arab) when oil are controlled by government, GDP of their country seems very high but the living standarad of people are not. In the face of the world, UEA seems performing very well in terms of economy but there are some microeconomic problems.