When a market is competitive and functioning properly, economic theory predicts that the market equilibrium will be efficient. However, this may not always be the desired outcome. Market outcomes may be unequal or distorted by market failure. Offer an example of a market where you consider the real-world outcome to be unacceptable. Why is the market outcome unacceptable?How can government policy improve on the market equilibrium? Will this solution create a surplus or shortage in the market according to economic theory? Explain.What effect will this solution have on consumer surplus, producer surplus, social surplus, and deadweight loss? Explain.

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Answered: When a market is competitive and…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter3: Demand, Supply, And The Market Process

Section: Chapter Questions

Problem 14CQ

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When a market is competitive and functioning properly, economic theory predicts that the market equilibrium will be efficient. However, this may not always be the desired outcome. Market outcomes may be unequal or distorted by market failure.

Offer an example of a market where you consider the real-world outcome to be unacceptable. Why is the market outcome unacceptable?
How can government policy improve on the market equilibrium?
Will this solution create a surplus or shortage in the market according to economic theory? Explain.
What effect will this solution have on consumer surplus, producer surplus, social surplus, and deadweight loss? Explain.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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