Government Tools
Our government helps the market and the consumers by creating tools to help combat market failure. Market failure is when there is a market imbalance caused by distortion (CFI Team, N.D.). The tools mentioned below are some of the ways that the government can help provide stability and balance
to the market.
1.
Command and Control Policies-These policies are a way for the government to either require
or prohibit certain behaviors by companies. A good example of this the Environmental Protection Agency. The EPA helps regulate pollution by creating and enforcing regulations that help protect the environment from pollution (Mankiw, 2021).
2.
Corrective Taxes and Subsidies- These taxes and subsidies are a way that the government can
help the market. They have created a system where taxing negative externality activities and granting subsidies for positive ones. Corrective taxes are thought to be more effective than regulations by giving the company more incentive to stop doing the negative activity.
3.
Tradable Pollution Permits-These permits are the government’s way of controlling the amount of pollution a company can create. Making the permits tradable has created a successful system for many companies. It gives the opportunity for companies to make money by reducing their own pollution and selling the unused permits to a company willing to pay for them. Supply and Demand Equilibrium
The government can impose price ceilings and floors, which will change the supply and demand balance. They also do it by putting taxes on different goods and services. I noticed while doing the simulation that when there were more taxes applied, it was harder to make a larger profit with the robot
dogs. The more taxes that are applied, even when being split between the seller and the buyer, it results in a smaller payoff. The nuisance fee made me more aware of the price I had to sell my robot dogs at to make a profit, especially when my own cost went up. Making sure I got the best price available quickly helped also ensure that I made an overall profit. Consumer or Producer Surplus The Principles of Economics text book tells us that consumer surplus is “the amount a buyer is willing to pay for the good minus the amount that the buyer actually pays for it” and surplus is “the amount a seller is paid for a good minus the seller’s cost of providing it” (Mankiw, 2021) The government
can change the surplus by putting into place a price floor or ceiling. When a price ceiling is in place, it applies a maximum dollar amount that a company can charge for the service the provide. When there is a price floor in place it dictates the minimum dollar amount the company can receive for their services. Either of these actions can assist in setting an equilibrium price for whatever industry the company is in. When the equilibrium price lowers, the producer surplus also lowers with it. The same principle goes for
