Respond to the following prompts:
One of the problems in a competitive market environment is deadweight losses. Respond to the following prompts on this topic and support your answers with examples and references:
oWhat are deadweight losses, and what are their causes?
oWhat are the market effects of a deadweight loss?
oWhat are the major factors that determine who will bear the burden of a tax or the incidence of a tax?
oIf the government uses taxation to deal with a situation, how would the various elasticities of supply and demand affect the deadweight loss of that tax? Explain using examples.
oIf the government proposes the use of cap and tax programs to deal with deadweight losses, how would they work? Explain using examples to illustrate your point.
oWhat are the pros and cons of such a program? Assess them.
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.
oWhat are some of the reasons for this failure?
oHas government intervention into competitive markets changed the efficiency of these markets? Why or why not?
oWas Smith correct or incorrect in his theories concerning the efficiency of the markets in allocation of resources? Support your answers with examples and references.
Justify your choices with valid assumptions and logically driven arguments. Cite any sources using APA format.
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