Question

explain whether each of the following government activities is motivated by a concern about equity or efficiency . in this case of efficiency, discuss the type of market failure involved
a. providing subsidies to padi farmers
b. regulating electricity rates
c. evaluating mergers of malaysian banks
d. giving free health care services
e. providing national defense
f. improsing fines on firms that pollute

Answer 1

Equity and Efficiency
a) Providing subsidies to paddy farmers is an efficiency measure aimed at correcting the market failure of high cost of inputs.
b) The regulation of electricity rates by the government is an efficiency measure aimed at eradicating the market failure of monopoly while ensuring that electricity is affordable.
c) Evaluating mergers of Malaysian banks is an efficiency measure that is aimed at correcting the market failure of monopoly in the banking industry.
d) By giving free health care services, the government is concerned with equity. The measure ensures that all citizens can access medical services regardless of their economic class.
e) Providing national defense is an efficiency measure aimed at correcting the market failure of external security threats.
f) Imposing fines on firms that pollute is an efficiency enhancing measure that corrects the market failure of pollution by businesses.