Yi Ting Chen - cases that are defined as positive...

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Yi Ting Chen Economics 110 May 19, 2011 Naked Economics Write-up Chapter 3 and 4 I thoroughly read the N. E. Chapter 3 and 4. Many believe that free market is the best way for people to gain what they want. In other words, through the market that composed merely of supplier and consumers, all the participants are able to maximize their welfare. Unfortunately, sometimes things do not go as the way we expect. Externality is one of the disadvantages of free market economy. According to the book, externality is the gap between the private cost and the social cost of certain behaviors and the market itself cannot fix the problem. For example, the pollutions that generated by factories are often neglected and considered as a part of the cost of the product the companies produce. The social cost exceeds the original cost. The society now has to bear the cost. This evidence is called negative externality. In contrast, there are also some
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Unformatted text preview: cases that are defined as positive externalities. No matter what type of externality it is, it prevents the economics system from total efficiency. To find a remedy, government has to step in. In fact, government plays a crucial role on the regulation of the economics system. Government can correct the system by placing proper taxation or subsidiary. Some economists argue that the government should not involve too much in the economy because government is a form of monopoly which might cause some problems; however, if the government does not regulate the system and provide several services which may not be available otherwise, residents of the countries will never have the chance to enjoy a safe and clean living quality. In order to provide certain goods such as education and national defense, governors need to be aware of deadweight loss....
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