Market Failure and the Role of Government

Rely on predictions based on historical trends of wages and unemployment.

Assume workers of different skills levels and experience are affected equally.

Overall economic growth is the key determining factor.

Apply marginal analysis to the benefits of hiring a worker.

It decreases product differentiation as firms attempt to mitigate taxes through cost reduction strategies including homogenization of products.

It increases long-run economic profits for firms due to a decrease in competition from new entrants deterred by the tax.

It leads to higher prices for consumers and potentially reduced output due to increased costs for producers.

It encourages allocative efficiency since taxpayers fund beneficial public goods while firms continue operating where marginal cost equals marginal revenue.

The subsidy could lead to excessive entry into the market resulting in negative externalities outweighing gains from innovation.

Market forces may self-correct creating natural barriers preventing over-entry thereby enhancing overall economic welfare through technological progress.

Subsidies create uniformity across industries facilitating perfect competition which ensures maximum consumer and producer surpluses combined.

The subsidized moves towards optimum productive efficiency due resulting Pareto improvements eradicating any form of welfare loses associated with said actions.

The amount of money spent on existing healthcare programs.

The potential benefits from subsidized college education that are forgone.

The reduction in military expenditures to balance the budget.

The total budget allocated for all social programs.

Increase in consumer surplus

Surplus of the product

Decrease in producer surplus

Shortage of the product

Point B

Point P1 and Q1

Point M

Point P2 and Q3

Raise job qualifications or requirements for positions offered at the higher wage rate.

Outsource work internationally where minimum wage laws may not apply or are lower than domestic rates.

Decrease wages since they now have more applicants per position available than before.

Hire more workers due to an influx of qualified candidates attracted by higher wages.

Firms may respond with less innovation due to decreased profits from compliance costs associated with regulation, limiting product variety and differentiation indirectly.

Regulations might lead all firms to adopt identical technology, making them perfect substitutes and eliminating differentiated competition altogether.

Regulations could standardize certain aspects of products reducing differentiation but possibly enhancing overall welfare through increased information or safety standards.

By increasing fixed costs through compliance measures, new entrants might be discouraged thereby reducing competition and product differentiation opportunities within industries.

Because producers force them to choose through advertising strategies only.

Because there is an overabundance of every good available on the market.

Because governmental policies require them to purchase certain items only.

Because resources are scarce, they must decide where best to spend their money.

Set quantity where average total cost is minimized.

Produce where total revenue exceeds total cost by the largest amount.

Produce where marginal revenue equals marginal cost.

Increase production until price equals average fixed cost.