Economic Issue

Topics: Externality, Market failure, Welfare economics Pages: 6 (1596 words) Published: December 17, 2012
Assessment Task 3

Unit: Economic Issue

Group Award: Financial Service

SCN: 135121797

Candidate’s Name: Zhang HongXiang (Edwin)

HND Centre
XianDa College of Economics and Humanities
Shanghai International Studies University


Date: 11/Dec/2012

This report will explain Market Failure and how government intervention when market failure happened through public goods, merit goods, externalities and imperfect competition.

Also this report will introduce one UK welfare policy---Housing Benefit and describe the instruments the government use to achieve their Housing Benefit policy. At the end, this report will justified evaluate of the performance of the housing benefit in relation to its use within UK.

1. Market Failure and Government intervention
Market outcomes are supposed to be efficient and productively. When market outcomes are not efficient or free market fail to allocate resources efficiently, we indentify these situations is market failure. When market failure happened, market will fails to provide a necessary good or services, or fails to properly assign costs. Simply say as the quantity product demanded by consumers does not equate to the quantity supplied by suppliers. There are some situations may cause from market failure: imperfect and inadequate information may lead to do wrong or not doing a cost benefit analysis, not enough to do a long term costs / benefits or with mistakes. Political self interest may leads politicians pursuit their own interest instead of allocate resource fairly and efficient. Monopolies or imperfect competition refers resource own by one or few organizations; they can control the market of resource to make benefits for them.

Government intervention is an action taken from the government that alter or change economic an activeness, supply ability and unconstrained decisions make through normal market trade. Government intervention usually is used in correcting and fixing when market failure happened.

2.1 Government Role on Public Goods
Public good is a good that is both non-excludable and non-rivalry in consumption. It refers e cost of keeping nonpayer from enjoying the benefits of the good or service is prohibitive and the consumption doesn’t reduce others’ consumption. It belongs to services should supplied by government. Public good has huge difference with private goods: public goods focus on groups, but private good focus on private and just supplies to person who bought it. Government supplies public goods such as national defense, scientific knowledge, prevention of contagion, conflagration and flood.

2.2 Government Role on Merit Good
A merit good refers to goods or services that are provided for the benefit of society. Often merit goods are provided or subsidized by the government because their provision would be inadequate 

The concept of merit goods assists governments in deciding which public or other goods should be supplied. Merit goods are commodities that the public sector provides free or cheaply because the government wishes to encourage their consumption. Goods such as subsidized housing or social services, which predominantly help the poor or health care services, which help the poor and elderly, are generally regarded as having considerable merit and therefore have a strong claim on government resources. Other examples include the provision of retraining schemes or urban regeneration programs.

2.3 Government role on Externalities
Externality: An externality refers that there is some third party be effect by the other 2 party decisions. Externality can be both positive and negative. Such as, smoker buy cigarettes from seller, it is negative externality to people don’t smoke, because second-hand smoke is bad for health. Education is positive externality, students may use the knowledge and skills learned from school to create value to company he work for. Company is the...
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