d3 Competitive Market

Discussion Question 1:

One of the problems in a competitive market environment is deadweight losses.

• What are deadweight losses, and what are their causes?
• What are the market effects of a deadweight loss?
• What are the major factors that determine who will bear the burden of a tax or the incidence of a tax?

Discussion Question 2:

Adam Smith, usually referred to as the father of economics, expounded the theory of free markets and opposed any form of concentration of economic power. He believed that any authority establishing a price that provided a fair price to the providers of the factors of production would distort the market’s natural ability to determine prices and output levels. In general, he believed that competitive markets would allocate resources to their highest and best use. However, in recent times, we have seen the market mechanism fail and allocate too many or too few resources to the consumption or production of some goods and services.

• What are some of the reasons for this failure?
• Has government intervention into competitive markets changed the efficiency of these markets? Why or why not?
• Was Smith correct or incorrect in his theories concerning the efficiency of the markets in allocation of resources?
• Justify your answer.

Start reviewing and responding to at least two of your classmates’ postings as early in the week as possible. Participate in the discussion by asking a question, providing a statement of clarification, providing a point of view with a rationale, challenging an aspect of the discussion, or indicating a relationship between one or more lines of reasoning in the discussion. Please post peer responses by the end of the week.

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