The paper "Government’ s Role in a Market Economy" is an outstanding example of macro and microeconomics coursework. Every single economy has different characteristics that define its fabric of existence. Some economies are free markets while others are regulated by the government of the day. Free economies imply that the theorem of demand and supply is fully in the play setting commodity prices. In addition, the propagators of the free economy model opine that, in a free-market economy, there is no government intervention. On the other hand, there is the socialist market economy or a planned economy that is run by the government where the government agencies regulate and allocate resources (Vaile, 2004).
In addition, the government regulates wages as well as prices and may even determine the responsibilities bestowed to individuals. Since time immemorial, the government has been in control, in various sectors of the economy but the degree of control varies in the socialist nations. For instance, in the liberal nations, the government only regulates the principal industries while, in other stringent nations, the government exercises extensive control on many spheres of the economy.
A classical example of a planned economy in the Soviet Union. Though the economy collapsed in the mid-1980s, some countries around the world, for instance, Cuba still exercise control in their economy. Finally, there are mixed economies (Taylor & Luckham, 2006). A mixed economic system combines both the free market and the planned economy. Many of the decision making roles are delegated to the market by individual participants while the government plays a certain role in the economy. The government plays a vital role in the allocation of resources ensuring that there is an equitable distribution of resources.
An example of the mixed economy is the United States which is among the advanced nations around the World enforcing a mixed market economy (Kelton, 2006). The only pertinent question facing the mixed economy theorem is the fact that there is no clear cut difference between private and public economic sectors. This paper seeks to illustrate whether the free market can exist in the real world without government intervention. Capitalism Capitalism is another name for a free market.
However, there are varying degrees of freedom which imply that the government can exercise minimum or no intervention with regard to the allocation of resources as well as the means of production. More often than not, the government seeks to intervene in the free markets to correct the market disorders or failures and promote social welfare. In addition, many capitalists states rely on the market forces to allocate resources while the government relies on the state-owned facilities and agencies to accumulate capital. Ever since the end of Feudalism, capitalism has a predominant in the Western world.
However, scholars opine that the contemporary economies declaring to capitalists are spearheading mixed economies as they are not ideally free markets (Ball, 1997). This is because; these economies have both state and privately-owned enterprises. However, according to economic scholars, capitalist economies should entirely rely on the forces of demand and supply. Rule of law In any market, regulatory frameworks come into play. This is because; it is almost impossible for mankind to live in harmony and cohesion in the absence of law. In line with thoughts, the free markets require regulation from an oversight authority seeking to ensure that exploitation tendencies cease from happening.
The capitalist’ s economies have to have government intervention although on a limited scale. The government agencies will be the oversight body providing regulations that will ensure the provision of a conducive market environment. In an instance, a market runs with no regulation this would amount to savages thus no economy would thrive without interference from an oversight body. Market failures On the other hand, there are some market distortions that cannot realign in the absence of the government’ s authority.
In the neoclassical welfare, market failure as a justification for the government’ s interference in the free economy. According to this justification theorem, it valuable to consider two prime assumptions; the first assumption illumines that the market is the default allocator of resources (Shepsle & Barry, 1984). Further, the assumption derives a perfect competition scenario where free and simultaneous information will enhance the correction of market distortions. However, the second assumption asserts that, in the instance of imperfect markets, the government should correct the market failures.
This assumption arises from the fact that there is a dire need in society for scarce resources (Munakata, 2006). However, in the eventuality of a market disorder, the information does not flow smoothly given the imperfections prevalent in the market thus the government needs to intervene. The difficulty emanating from this approach is the fact that there exist two contradictory assumptions both revolving around capacity and human motivation? This is because; the corporation’ s heads deny prompt information while the political elite is the executors of the public trust. On the other hand, the public who are largely the consumers lack relevant information.
This implies that the prevalent government inconsistencies undermine the allocation of resources process. It is inherent that there could be market problems as well as government problems. However, it is indisputable that these two problems cannot be addressed under the same metrics. These two problems are related but should be addressed separately to ensure that there is an appropriate solution mitigating all the expected eventualities (Shepsle, 1986). It is beneficial to desist from classifying the problems in utmost isolation. This is because; the inherent failures arise as a result of mechanical failure and hence neither the political nor the economic doctrine should bear the blunt fully.
It is worth noting that given the market failures prevalent in all economies, the free market scenario is not achievable (Lloyd, 2002).
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