– The government is faced with a lot of challenges to help navigate markets

| March 13, 2016

Question:

– The government is faced with a lot of challenges to help navigate markets when externalities are present. An externality can cause either over or under production in a market. If the government decided to tax a market, how would this create an appropriate market solution?

– When looking at a negative externality, you will find that this is a cost to a third party. A negative externality will require the government to intervene in the market to provide both support and proper solutions. What would be an example of a negative externality that would require the government to intervene in the market? Please relate your answer to the market characteristics of externalities.

– A positive externality is a benefit to a third party. The government will need to get involved when a positive externality is present given the challenges that are being faced in the markets. An example of a positive externality would be education. Why do you think the government will need to support education as a positive externality?

– When looking at prices, you will find that they are always changing. The challenge that stores are facing is how to evaluate prices changes on markets. Do you think a store will want to raise prices on all products or certain products? How do you think they can evaluate this on our economy?

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