Imperfect competitive market totally proves wrong the classical economist when there is experience of efficient market in that, in classical economics all the firms sell identical products, in this case, the firms are not able to ensure effective control on the market price, and the market shares per firm are very small, firms and customers have perfect knowledge of the industry, and there are no entry barriers (Hazlitt). Research proves much that this type of market performance, as a concept that does not exist in the real world market. Imperfect competition market experienced includes oligopoly; this is a Monopolistic competition consisting of Monopsony and oligopsony. When referring to Oligopoly, it has many buyers but very few sellers in the market. An example is the cable television industry in the USA. One of the experiences is that the few existent firms manipulate the prices, perfect market knowledge is not there and entry to the market is very hard so as to maintain the few suppliers. Monopolistic competition is another example of an imperfect market. In this, the firms products are not identical. An example of this market is the shoe and clothing companies in different companies. Entry barriers are lower than the classical economies and firms have less control over the price and their customers, finally, the firms have market knowledge over their differences (Keynes). Monopsony and oligopsony have many sellers and few buyers. An example is the tobacco industry. In this, the seller can manipulate the market price. According to my research, it is evident that imperfect competition is more practical as compared to classical economies which are believed to be just a concept that does not exist.
Part A (ii)
One of the two microeconomics policies that could be at one point employed in making the market more efficient include the policies aimed at a specific industry, sector or market. Examples include subside taxes, competition policy, environment policy and price control; when it come to subside taxes, in this policy the government seeks to build up its industries. Its capable of doing these, by providing subsidies to infant industries, and provides research grants to innovative industries. It can also protect local industries by imposing a tax on imported products. Subside taxes normally, affect the output of some firms profits which may affect the willingness of some firms to invest, the cost of production and in turn, it reduces products demands (Tisdell and Hartley). The effect of subsidy policy is influenced by the subsiding size and the price elasticity demand. Tax on products of inelastic demand would have a greater effect on price than the quantity sold for products with elasticity demand its will affect the quantity produced. Therefore if the government wants revenue it should text products with inelasticity demand. Additionally, the competition policy intends to promote competition in the general market. The government is in the position of doing this by prohibiting uncompetitive practices which, predatory pricing which is setting low prices to chase away competitors or discourage entry into the market, preventing some mergers, regulating monopolies, removing entry and exit barriers, having great influence on the market.
Joseph Schumpeter is recognized as one of the major economists from Australia. Joseph Schumpeters work initially received a lot of criticism in the market and in economics as a whole (Olwan). He viewed the economy differently from the Keynes and another economist. According to him, capitalism was based on innovation. He quoted capitalism as a creative distraction. Capitalism was the innovation by entrepreneurs and the investment into development. He viewed the economy like it was a living organ because the constant growth experienced in order to maintain its health. According to him, capitalism healed the seed that would lead to its destruction. He claimed that if the government takes control over the economy. The economy, on the other hand, can have an out of control inflation and an economic disaster because of the self-centered nature of human beings. His analysis has proved to have a great impact and it has gained respect and attention. His work has helped to promote a healthier economy and proper economic growth.
Mal distribution of income is an uneven distribution of income. Mall distribution of income may lead to the growth of economic institutions in the following ways. Some observations claim that inequality in income distribution leads to growth in various ways. Incentives are greater for entrepreneurs and innovation leading to the growth of the economic institution. Large salaries for higher positions encourage lower paid workers to work hard increasing institutions productivity. Economic inequality can also lead to fairness in income distribution through the development of government tax policies. Such policies include the progressive tax where the government takes from the haves and gives to the have nots. Economic inequality can affect the democracy by encouraging political inequality. When wealth distribution has been concentrated on a small group of people, political power will also be concentrated within those small groups of people that are wealthy (Piketty). In democratic societies like the United States of America, political leaders who are not wealthy need private funding for them to continue with their campaigns .Even if more money spent does not automatically mean more votes. It is proven that more expenditure correlates with more votes in past elections.
Hazlitt, Henry. Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics. Crown Publishing Group, 2010. Print.
Keynes, John Maynard. General Theory Of Employment , Interest And Money. Atlantic Publishers & Dist, 2016. Print.
Tisdell, Clement Allan, and Keith Hartley. Microeconomic Policy: A New Perspective. Edward Elgar Publishing, 2008. Print.
Olwan, Rami M. Intellectual Property and Development: Theory and Practice. Springer Science & Business Media, 2013. Print.
Piketty, Thomas. Capital in the Twenty-First Century. Harvard University Press, 2014. Print.
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