Economics of Public Policy PDF

Running head: ECONOMICS OF PUBLIC POLICY
Economics of Public Policy
Name of the student
Name of the University
Author Note

1ECONOMICS OF PUBLIC POLICY
Answer 2:
In economics, intervention of government and its magnitude is considered as an
essential topic to discuss. According to free market economists, government should not
intervene in any economic activities, as this activity can cause inefficient allocation of
resources while socialist economists always argue for government intervention (Joo, Seo and
Min 2018). Therefore, the entire discussion can be stated in the context of the United
Kingdom. If the government intervenes within the economy then the UK economy can
experience greater equality in income and wealth distribution. This in turn improves equality
of outcome and opportunity significantly. In addition to this, government failure can also
reduce the chance of market failure. The concept of market failure occurs when an economy
cannot allocate resource freely to produce specific goods and services. Therefore, market
failure causes welfare loss within economy (Baranzini and Carattini 2017). Firms in the UK
may produce public goods or merit goods by small amount through applying available
resources and produce private goods by large extend. In addition to this, intervention of the
government can be described with the help of macroeconomic concept. To reduce recession,
inflation, unemployment or other macroeconomic instability, the government can take fiscal
or monetary policies accordingly.
Therefore, government intervention in market intends to overcome market failure.
The chief focus of market failure includes price stability through applying minimum prices as
well as maximum prices. Within the free market economy, scarce resources are allocated
automatically based on price mechanism. In this context, the expenditure along with
preference decisions related to consumers as well as supply decisions of businesses help the
market to determine equilibrium price and quantity automatically. The UK government could
intervene within this market for influencing price mechanism significantly to allocate

2ECONOMICS OF PUBLIC POLICY
resources efficiently. This in turn can help the economy to improve desired social welfare as
well as allocation of resources.
However, this intervention further causes some negative impacts on the economy as
well. For instance, the government may take wrong decisions for produce output. This may
happen due to political pressures for which the government spends inefficient projects and
receives inefficient outcome. In addition to this, this type of intervention reduces individual
freedom of firms. As a result, large-scale firms cannot take efficient business decisions. A
market can decide and take best production decision while the government cannot take such
decisions efficiently. For instance, the intervention of UK government increases the price of
energy and consequently makes it more expensive (Baranzini and Carattini 2017). Constant
intervention in the energy sector of the UK government has generated a complex system
related to subsidies along with an uncompetitive market. This further fails to provide secure
electricity based on low-cost. On the contrary, some economists have argued that the UK
government needs to intervene within economic system for keeping the country safe. The
chief reason for this statement is Brexit. After taking this decision, the manufacturing sector
within the country has started to experience various difficulties while the economy has
experienced recession. For expanding business sector by large extend and selling products in
international market, the government along with private business owners have taken
decisions to merge business as well as energy departments. As Brexit has changed economic
conditions of this country, it could be fruitful for the government to intervene for maintaining
stability.
Answer 4:
To explain the difference between behavioural economics and neoclassical economics
based on their policy applications, assumptions related to these two approaches are required
to explain. The behavioural theory intends to analyse and understand about psychological