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1. An economist makes the following arguments: a. “For private goods, an all knowledgeable government that...

1.

An economist makes the following arguments:

a.

“For private goods, an all knowledgeable government that knows the willingness to pay (or the individual demand curve) of the citizens could operate as a first degree price discrimination monopoly and achieve the same economic outcome as the perfect competition market.

For public goods, an all knowledgeable government that knows the willingness to pay (or the individual demand curve) of the citizens could better supply the optimal amount of public goods than the perfect competition market.”

Do you agree? Justify your answers with the economic concepts and theories you have learnt.

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Answer #1

Answer - No , I do not agree with the given statement.

The monopoly is an inefficient market , which earns the positive economic profits unlike the perfect competition. It also practises the price discrimination which creates the deadweight loss. Hence the monopoly cannot obtain the same economic outcome as perfect competition.

In the case of public goods , there is the problem of the free rider. Even charging the price from the user will not reduce the inefficiencies completely. The perfect competition eliminates the inefficiencies. Hence the perfect competition eliminates all the inefficiencies.

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