Business Week, in an article dealing with management, wrote, "When he took over the furniture factory three years ago...[the manager] realized almost immediately that it was throwing away at least $100,000 a year worth of wood scrap. Within a few weeks, he set up a task force of managers to deal with the problem. And within a few months, they reduced the amount of scrap to $7000 worth [per year]." Was this necessarily an economically efficient move?© BrainMass Inc. brainmass.com October 25, 2018, 3:43 am ad1c9bdddf
Uncertain, it depends on how much he pays the managers to deal with the problems. ...
Is this example an economically efficient move?
Explain why, in the microeconomics view of the world, the operation of the private market as a default, maximizes economic efficiency--hence, why government intervention on efficiency grounds has to be specifically justified by particular circumstances.
The answers should be 1 short paragraph for each subpart.
a) Explain why, in the microeconomics view of the world, the operation of the private market as a default, maximizes economic efficiency--hence, why government intervention on efficiency grounds has to be specifically justified by particular circumstances.
b) What are the 3 specific circumstances, where the operation of private markets does not maximize economic efficiency, hence, where government intervention is conceptually justfied on efficiency grounds?
c) Picking 2 of the 3 examples from part (b), draw diagrams which show how the market responds to the optimal government intervention designed to correct the efficiency problem, and explain, with appropriate lettering in the figures,, the net economic effects on all of the affected parties, and the net efficiency effect that results when the "market failure" is fixed through government intervention.
d) Explain the conservative critique of the accounting result obtained in part (C), and the more general critique of the philosophy that government intervention is justified to fix the efficiency probblem in such cases. Please see attached handout on "market failure" versus "government failure" for explanation of these 2 terms.
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