Reference no: EM13780846

• One of the problems in a competitive market environment is deadweight losses. Respond to the following prompts on this topic and support your answers with examples and references:
  • What are deadweight losses, and what are their causes?
  • What are the market effects of a deadweight loss?
  • What are the major factors that determine who will bear the burden of a tax or the incidence of a tax?
  • If the government uses taxation to deal with a situation, how would the various elasticities of supply and demand affect the deadweight loss of that tax? Explain using examples.
  • If the government proposes the use of cap and tax programs to deal with deadweight losses, how would they work? Explain using examples to illustrate your point.
  • What are the pros and cons of such a program? Assess them.
• Adam Smith, usually referred to as the father of economics, expounded the theory of free markets and opposed any form of concentration of economic power. He believed that any authority establishing a price that provided a fair price to the providers of the factors of production would distort the market's natural ability to determine prices and output levels. In general, he believed that competitive markets would allocate resources to their highest and best use. However, in recent times, we have seen the market mechanism fail and allocate too many or too few resources to the consumption or production of some goods and services.
  • What are some of the reasons for this failure?
  • Has government intervention into competitive markets changed the efficiency of these markets? Why or why not?
  • Was Smith correct or incorrect in his theories concerning the efficiency of the markets in allocation of resources? Support your answers with examples and references.