Essay: Objectives of Microeconomics

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Sample Essay – Objectives of Microeconomics

Reducing regional disparities

Immobility of resources brings about the regional disparities since different geographical regions have different endowment of resources. In efforts to curb these disparities, the microeconomics requires the government to intervene through setting regional policies that requires the firms to invest in certain areas. In efforts to encourage the firms to invest in all regions, the firms investing in challenged areas are offered incentives such as subsidies and financial boosts.

Correction of the market failures

Market failure occurs when the market forces do not operate at equilibrium and there is no economic efficiency meaning that the resources are not optimally being utilized. The sources of the market failure includes

Unfair competition

Availability of external costs and benefits

The presence of public goods

Microeconomics requires that economies develop through intervention to guarantee the efficient allocation of limited resources.

Redistribution of wealth and income

In any market economy, the purchasing power of households or firms determines their ability to consume goods and services. Therefore, the poor within an economy have limited access to some goods and services compared to the rich.

The purchasing power between the poor and the rich is catalyzed by the differences in skills and talent, discrimination among the different sexes and wealth inequality that leads to income disparity.

For microeconomics to achieve the objective of redistributing wealth and income, the government must come, formulate and implement some policies that will guarantee equity among households and firms.

To achieve this objective, the government develops policies such as the minimum wage rate, higher taxes to higher income earners and mean testing that offers benefits to the most needy citizens (Ruffin, Gregory, 2000, P 22-47)  .

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