Economics for Managers - Assignment Example

The paper “Economics for Managers” is an excellent variant of the assignment on macro & microeconomics. Why is limiting market power regarded as a desirable objective of government? Give three examples of policies that have been adopted in Australia to restrict monopoly power in certain industries?

Market power is the capacity of a firm to engage in profitability by manipulating prices of goods or services. Regulation of market power is a major goal of every government because it greatly assists in preventing market inefficiencies. When producers are allowed to exercise market power, allocative inefficiency arises because resources will not be distributed equally. Regulation of market power is also applied as a tool for consumer protection. If the business community is allowed to make decisions on its own, numerous rogue businesspersons will tend to exploit members of the public. Such individuals will produce low quality, unhealthy products at high prices leading to widespread suffering.

Australian government adopted various policies to reduce monopoly in various industries. To begin with, the National Competition Policy, which came into power during the 1990s was signed into law to promote microeconomic reforms. The National Competition Policy applies to the public sector in a bid to attain the highest level of efficiency in the provision of public goods and services. The policy actively reduces market restrictions on competition and allows for competitive neutrality. In June 2005, the Australian government passed the National Reform Agenda (NRA), with an aim of propping the earlier introduced National Competition Policy. The NRA was meant to position the country in a competitive position in world economy. The Australian government has also signed numerous trade agreements with other countries. The policies were meant to enhance trade with other countries across the globe. Ideally, trade agreements with other countries are meant to regulate import and export industries.

Answer both (a) and (b)
Define the main types of market failure?
Natural monopoly- occurs under a circumstance when produces a given set of goods and services. It results when a firm engages in large-scale production leading to enjoyment of economies of scale. Thus, the large-scale producer will produce goods at lower costs than other competitors will.