Macroeconomic - goverment Intervention
In order to understand how government subsidies and indirect taxation affects the supply of goods and services in a free market, one must first understand the principles and ideas behind a free market. First one has to assume that the given country is relatively advanced and economically stable. It also needs to be capitalistic oriented, and by that I mean that it has to be (somewhat) wealthy, provide broad banking services and have lots of Capital. This sounds like elements of total democracy, but let me take it a little bit further than that and return with a more detailed explication later. The various incomes e.g. incomes, wages, and land rent are in a perpetual cycle, and specify the products the consumers want, so that the producers may produce them. This flow of cash enables the producer to invest in more capital factors, thereby producing more, at a probable cheaper cost. Thus everybody ends up satisfied and life is well. Of course this might not work entirely correct, since there will always exist certain externalities, which will have influence on the cash flow. Yet, it has to be assumed, so that we may move on and create the overall picture. The free market is a relatively new way of thinking and only goes back about
In this case the government showed itself from its polite side and helped out. Governments say that, “its for your own best, we are merely helping you” and this might be partly true. Of course they get huge sums of money imposing taxations and thereafter squander them on something they have not even bothered to plan yet. It is highly amusing to hear when suddenly politicians dedicate their lives (and our money) to a new cause, a new building or whatever it might be. To be fair they probably do use some of the money for improving hospitals, training more police and such; but it’s just not enough they use. By spreading the money out they try to patch a little bit everywhere, eventually leading to no improvement or use of our taxation money. Government subsidies can be briefly described as “a payment by a government to a firm or household that provides or consumes a commodity.”¹ Governments intervene on behalf of the people to rectify a situation if it is not desirable. This can be because of genuine concern for the people, or merely an attempt to gain votes. Innovation is the greatest achievement in a free market, where competition and efficiency forces technological advances to occur. It strives towards perfection and everybody wants to do their best, since it will benefit them in the end, and great new innovations can occur. There is a chance of monopolies becoming apparent, but it is rare, and can be controlled by the government – government intervention will be explained later on when it is more relevant. In a free market a nations also accumulates wealth as a result of the prospering companies. However, it is not equally distributed and class divisions with income discrepancies are bound to exist. No economy can avoid that, although under the communism rule everybody was supposed to be equal, it did not actually work as well as they were hoping; the probably cause was a lack of communication, coherence and continuous understanding between the people in charge.
Some topics in this essay:
Nordhaus Economics,
,
Price Ceiling,
I’d Nevertheless,
Mixed Economy,
S1 Subsidies,
Edition Indirect,
free market,
supply curve,
indirect taxation,
government intervention,
subsidies indirect taxation,
subsidies indirect,
mixed economy,
max rent,
government subsidize difference,
subsidize difference,
cost production,
government subsidy,
consumers benefit surplus,
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Approximate Word count = 2097
Approximate Pages = 8 (250 words per page double spaced)
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