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Markets and Economy

Markets and Economy

admin / January 3, 2019

Introduction

A government has the role to regulate all the economic activities to ensure stability and safety of all resources that are available. It is important that government leaders should embrace better policies of promoting the welfare of the people.

The GDP computation applied in measuring economic position in a country have their strengths and weaknesses and a lot of care should be taken to ensure the success of a country is well accounted for.

On the other hand, controlling pollution is an important strategy that a government should adopt to protect the resources available in a country. Government should embark on protecting the available resources and improving the welfare of its citizens by introducing better policies.

Federal budget deficit and recession

A budget deficit occurs when a government’s expenditure exceeds the income generated from the economy. As such, the government spends more income than it generates from its economic activities.

When the government experiences a budget deficit, borrowings increase to fill the gap between expenditures and incomes. During a recession the government generates lower incomes while expenses increase and this causes the need to borrow either internally or externally.

A recession occurs when the economy is performing poorly to an extent that the income generated from economic activities is too low to sustain the people and the government. A budget deficit can be used during a recession to stabilize the economy by increasing the government expenditure to ensure that more money is available for investment.

An increase in government expenditure will; result into an increase in the amount of money available for investment and this will help solve the problem of recession. When a government employs more resources, more income is generated and the money in circulation increases. More investments are made when the money available is increased and this will help resolve the problem of recession (Minsky, 2008).

Adjustments in wages and prices and equilibrium

Wages and prices have an effect on the market equilibrium such that a given change on the wages will have an impact on the prices of products offered in the market.

Wages are part of the costs incurred in the production process and producers apply these costs to determine the total costs of producing each unit. The cost of wages reflects on the prices attached to each item because producers must factor all the costs incurred in the production process.

The short-run equilibrium is achieved when wages and prices change without affecting the demand and supply of goods and services. The law of demand provides that man increase in the prices causes a decline in the quantity demanded for commodities in a competitive market.

Changes in the prices of commodities will affect the market equilibrium. Market equilibrium is a state which happens when the consumers are ready to purchase commodities offered in the market at a given prices and at the same time the producers are wiling to offer such products at that given price.

The short-run and long-run equilibrium in the market are achieved when the prices and wages are adjusted at a given margin. When producers adjust the wages, the prices affected and this shifts the market equilibrium (Mankiw, 2008).

Marketable pollution permits and the command-and-control system

Marketable pollution permits are provided to companies such that they are allowed to release a given amount of pollutants into the atmosphere. These permits are provided to industries to enable reduce the level of pollution. The permits are renewable and this allows companies to continuously reduce the level of pollutants released from the production process.

On the other hand, the government uses command-and-control system by issuing regulations about how companies should control the amount of pollutants they release to the environment and making follow-up programs to ensure that companies do not deviate from the provisions of the laws (Davies and Mazurek, 1998).

Marketable pollution permits are cheaper to implement because industries are issued with specific regulations which they should adhere to. This causes a higher concentration of polluted areas because companies can purchase and renew the permits. A command-and-control system is more efficient in controlling pollution in a given area because companies are restricted from releasing any pollutants in a given area.

The command-and-control system does not allow companies to purchase or renew their permits and this provides complete restriction on the amount of pollutants released into the environment. A government incurs more costs in regulating the level of pollution when the marketable pollution system is implemented than when the command-and-control system is applied (Davies and Mazurek, 1998).

GDP per capita and its weaknesses

Many countries use GDP as a measure of the economic progress however this does not reflect the true wellbeing of the people of a nation. An increase in GDP may be accompanied by a discriminative distribution of resources such that the gap between the poor and the rich is wide.

In addition, GDP does not account for informal market systems which may not be captured by the measures applied. For example, the role of housewives is not accounted for in the GDP calculation; however, these people contribute towards generation of income in an economy.

There are illegal income leakages, such as corruption, smuggling, and others that are experienced in an economy which cause an increase in the GDP whereas such systems are not easy to account for (Kingsbury, 2007).

In my own view, the factors which should be included in the computation of GDP are the gap between the rich and poor. Income distribution is an important factor to consider because an increase in GDP may be as a result of an expansion in the gap.

An improvement in GDP should consider the position of the poor in the economy such that the welfare of the people should be considered when the gap decreases. Secondly, all informal market systems should be accounted for when computing the GDP of a country.

Lastly, all illegal systems of income generation should be well monitored to ensure that there is no leakage on the incomes generated in an economy (Kingsbury, 2007).

Conclusion

Budget deficits are effective methods of regulating inflation in an economy because they provide more investment opportunities. This generates more income for the people and eventually a country is able to solve the problem of inflation.

It has also been established that use of marketable pollution permits allows companies to increase the amount of pollutants they release in a given area compared to command-and-control system of pollution regulation.

Lastly, GDP has been explained as a poor method of measuring the welfare of people in a country and governments should implement other tools to accurately measure the adjustments in the success of their economies.

References

Davies, J. C. and Mazurek, J. (1998). Pollution control in the United States: evaluating the system. Washington, DC: Resources for the Future.

Kingsbury, D. (2007). Political development. New York, NY: Routledge.

Mankiw, N. G. (2008). Principles of economics. New York, NY: Cengage Learning.

Minsky, H. P. (2008). Stabilizing an unstable economy. Yale, McGraw-Hill Professional.

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