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    is this a good evaluation for the government using indirect taxation

    indirect taxes as a form of government intervention can lead to government failure because a rise in costs of production means small firms with small profits and higher average costs may not be able to withstand this increased cost of production and so will leave the market allowing more room for monopolies to form and increase market share because the bigger firms will be able to cope with the increased costs of production whereas small firms will not be able to so it may result in monopolies which leads to different types of market failures

    Price ceiling

    a price ceiling is usually set below mark equilibrium in order to lower the legal prices firms in the market can sell at making it more affordable . However this means if prices are lowered enough it creates high barriers to entry as new small firms with high average costs will not join the market whilst small firms already in the market will leave as the lower price will be near/below their costs of production.This means the market will become concentrated and monopolies will form who will use their monopsony power to lower wages of workers in that industry leading to an inequitable distribution of income hence government failure
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    Good evaluation points but you could be more specific about the problems caused by monopolies by saying that they lead to lower output and higher prices for consumers resulting in an inefficient allocation of resources.
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    (Original post by mapotts53)
    Good evaluation points but you could be more specific about the problems caused by monopolies by saying that they lead to lower output and higher prices for consumers resulting in an inefficient allocation of resources.
    okay thanks but for a price ceiling they cant raise prices so how could i say it is bad-monopsony power to employ labour cheap?
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    (Original post by youreanutter)
    okay thanks but for a price ceiling they cant raise prices so how could i say it is bad-monopsony power to employ labour cheap?
    In the absence of higher prices monopoly power can lead to lower quality products through lack of consumer choice.
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    (Original post by youreanutter)
    okay thanks but for a price ceiling they cant raise prices so how could i say it is bad-monopsony power to employ labour cheap?
    Depends on the specification you are doing. I don't see a reason to mention monopsony power if it is not part of the specification. I think arguing that the market will become more concentrated/oligopolistic is going to be difficult and it also depends on the market. Can you use it for rented accommodation? You should try less complicated evaluations or ones that are easier to explain.
 
 
 
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