The paper 'The Government’ s Role in a Market Economy" is a great example of macro and microeconomics coursework. Among many people, media pundits and politicians, there has been confusion concerning the way free markets operate. Capitalism is mostly used to depict this notion of a free market. However, capitalism was used way back in 1776 by one of the supports of the free market. Real market Capitalism should be separated from free markets. Capitalism comprises of the social and political organization therefore it is evolutionary. According to economists, there are three pillars of any economic growth: self-interest, division of labour and property rights.
If property rights are implemented, it will ensure that people are willing to trade their goods and services at any positive prices (Sills & Abt, 2003). In any market transaction, what brings buyers and sellers come together in the interest of sellers to make a lot of profits and buyers want to obtain products at the lowest price possible. In any competitive market, self-interest utilizes economic welfare in society. There will be a proper allocation of products among the consumers if there is a free and competitive market.
When there is a market failure, there has to be several laws and regulations that must be followed so as to safeguard the economy and this is where the government comes in as a market regulator (Kates, 2011) Government role in a market economy The role of the government in the market place is not to have control over everything in the market economy but to improve the way the market economy is functioning. Therefore there should be a balance between the costs of regulating the market and the benefits derived from it.
Some of the reason the government play a role in the market includes: Protection of public good National defense is one of the indispensable roles of government in the market. This is because the defense of any country is totally different from other goods and services where people pay for every piece of uniting they consume. The govern purchases defense in totality for the nation at large. The role of the government in the market place is to make some improvements in the functioning of markets.
This type of public good services cannot be left in the hands of the private business because no private business could be able to sell the defense services to the entire nation and still remain to operate in business. Public goods can also include provision of pests and flood and pests control program and also provision of radio and TV signals where all these products can be consumed by many people at the same time and many times they are subjects to free-rider challenges (Kopelas, 2011). Pollution and external costs The government plays a critical role in reducing the level of pollution being emitted into the environment.
It makes laws and regulations to be followed so as to establish a tolerable level of pollution. The government comes up with fines, regulations, jail sentences and even some special taxes that reduce the level of pollution. The government can further come up with clear rights of ownership for the polluted resources will assist in ascertaining the market price of to be charged for the use of the resources and come up the identified rates to be charged on those using those resources.
The government’ s role here is to reduce overconsumption and overproduction of goods and services that may increase some external costs (Sachs, 2010).
Åslund, A. (2009). How Ukraine Became a Market Economy and Democracy. Peterson Institute.
Kates, S. ( 2011). Free Market Economics: An Introduction for the General Reader. London: Edward Elgar Publishing.
Kopelas, G. (2011). Society in a Market Economy. NY: AuthorHouse, .
Lonkila, M. (2010). Networks in the Russian Market Economy. NY: Palgrave Macmillan.
Sachs, J. (2010). Poland's Jump to the Market Economy. Pol: MIT Press.
Sills, E. O., & Abt, K. L. (2003). Forests in a Market Economy. Springer.