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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 charges the higher than the market price , creates the deadweight loss and is inefficient market. Thus , it cannot earn the same economic output as perfect competition which is the most efficient.

Same is the case with public goods which gives rise to the problem of free rider. The charging of the amount from the users does not reduce the inefficiencies completely and does not produce the same outcome as perfect competition.

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