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Introduction to Microeconomics
Microeconomics is a subdivision of economics that deals with study of behavior of individuals or households and firms as they make decisions relating to allocation of scarce economic resources. Basically, microeconomics deals with the demand and supply of goods and services, prices of goods and services in consumer markets, different market structures such as monopolistic, perfect competition and oligopolistic markets, poverty and welfare economics, labor markets, market failures, microeconomic government policies and income distribution amongst households.
Paper 1 Article: Public transport in Nepal: Double-O driver
This article discusses how public transporters in Nepal have come up with various strategies to control the public transport industry in Nepal. According to the author, bus owners have formed cartels that develop various barriers to new entrants into the industry. In addition, the transporters also liaise with powerful politicians to ensure that their business interests are well protected.
Relationship with Microeconomics Principle
In my view, this article directly relates to market structures studied in microeconomics. The act of forming cartels by the bus owners is a way of creating oligopolistic market structure in the public transport industry in Nepal. For example, the author asserted that the transporters charge high market entry fees for new buses that would like to ply city routes. In my opinion, this is an excellent example of entry barriers set by industry players in oligopolistic markets to discourage entry of new firms into the industry. In addition, formation of cartels by the transports also gives them the power to set the prices that the buses charge for transport services in the industry. This is another characteristic of oligopolistic markets in which industry players form cartels that are responsible for controlling and regulating the prices of goods and services provided by the firms.
Setting high barriers to discourage and bar entry of new firms into the transport industry is another key aspect of oligopolistic markets. Control of new entrants has been achieved successfully through the formation of cartels by the bus owners, hence ensuring low number of firms in the industry.
According to the article, other sectors of the economy that are also controlled by cartels include food, building and construction and government procurement and contracting industries. In my view, continued formation of cartels and excessive control of major sectors of Nepal’s economy by a few industry players may lead reduced economic growth and development. This is because of lack of free and fair competition in the market for various goods and services which is essential in stimulating economic growth and trade. This is because free and competitive markets often attract more investors, thereby leading to the creation of more jobs and inflow of capital.
Paper 2 Article: For Richer, For Poorer: Growing inequality is one of the biggest social, economic and political challenges in our time
In this article, Zanny Beddoes discusses how income inequality has continued to grow in American economies. Zanny argues that continued income inequality has become a major social, economic and political problem in United States of America in this 21st century. According to Beddoes, the rich are becoming wealthier whereas the poor are becoming poorer.
Relation with Microeconomics Principle
In my view, this article relates with microeconomics because it deals with the issue of income disparity in an economy. In microeconomics, the principle of equitable distribution aims at reducing income gaps between the rich and poor. Income inequality or disparity is whereby a large portion of the national income goes to rich people while the poor people receive a very small portion of the nation income. Income inequality occurs when the gap between incomes of the rich and incomes of the poor is substantially large.
Although the author argues that income disparity is an inevitable economic issue, I would assert that the government can control it by adopting appropriate fiscal and monetary policies such as increased taxation of the rich.
In my opinion, income disparity should be controlled because it reduces the ability of people to obtain essential services such as health care and education as well as reducing the ability and potential to prosper in the future. It also reflects market failures and inefficiencies of government policies such as inequitable distribution of economic resources. Moreover, an economy that experiences income disparities is likely to experience slow growth and development. This is because most of the national wealth and economic resources are concentrated in the hands of a few people who are rich.
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