The paper "Role of Government in Market Economy" is a great example of macro and microeconomics coursework. A market economy is an economic system in which decisions regarding production and distribution of goods and services are based on the forces of demand and supply. In such an economic system, the government plays no role in the production of goods and services. Another important feature of a market economy is that the means of production are privately owned for profit-making. In practice, such an economic system does not exist because the government regulates market activities for various reasons and to varying degrees (Bhagwati, 2002).
The following are some of the most important roles of government in a market economy: National Defense and the Public Good Provision and regulation of national defence services are an important reason why governments intervene in market economies. Essentially, national defence is a sensitive issue which cannot be left to the market forces. Unlike commodities such as computers, foodstuffs and clothing, people do not pay for each unit of national defence they consume; instead, it is purchased collectively for use by the entire nation (Graeme, 1999).
This type of commodity is called public good because no individual or business can sell national defence to the citizens and stay in business. In addition to national defence, there are other essential public goods and services which require the role of the government. These services include insect and flood-control programs as well as regulation of radio and television signal broadcast over the airwaves (Paul, 2005). Providing the Economy With A Legal Structure This is one of the most important roles of the government in a market economy and without which an economy may collapse.
The function of providing the economy with a legal framework requires the government to ensure the enactment of property rights and prompt enforcement of contracts. The function also requires the government to act as a referee by imposing penalties in case of foul play. In order for the government to perform this function effectively, the economy should be furnished with legislations, regulations and means for ensuring product quality and enforcement of contracts. Bilateral trade agreements and trade tariffs are some of the ways in which the government fulfils this task (Bockman, 2011). In his article, Tyler (2001) has argued that the government must implement and protect the rights to private property and any economic gains derived from the use of that property.
In the absence of such assurances, people will not want to risk their money in ventures whose rewards will be consumed by the state or some other entity. The obligatory role of the government to protect private property extends to factories, land, stores and other tangible resources used in the production process.
It also extends to intellectual property. In order to encourage and protect intellectual properties, the government issues exclusive rights to certain intellectual properties such as music, books, computer programs and films. The government also issues patents to protect other types of inventions such as designs, products and inventions. These exclusive rights give holders the right to sell and market their products freely (David, 2002).
Bhagwati, J. (2002). Free Trade Today. Princeton: Princeton University Press.
Bockman, J. (2011). Markets in the name of Socialism: The Left-Wing origins of Neoliberalism. Stanford University Press.
David, W. C. (2002). Comparative Economic Systems. University of Calgary Press, p.1.
Graeme, S. (1999). Global Transition: A General Theory. London: Palgrave Macmillan
Jordana, J. and David, L. (2005). The Diffusion of Regulatory Capitalism in Latin America: Sectoral and National Channels in the Making of a New Order". Annals of the American Academy of Political and Social Science, 598, p. 102–124.
Karagiannis, N. (2001). Key Economic and Politico-Institutional Elements Of Modern Interventionism. Social and Economic Studies, 50(3/4), p. 19–21.
Mises, L. (2001). Interventionism: An Economic Analysis. New York: The Foundation for Economic Education, Inc.. pp. 1–51.
Paul, M. J. (2005). A Glossary of Political Economy Terms, Market economy. Auburn University.
Pugel, T. (2007). International Economics. New York: McGraw-Hill Irwin.
Smith, A. (2009). An Inquiry into the Nature and Causes of the Wealth of Nations. Digireads Publishing.
Tyler, J. W. (2001). Smugglers & Patriots: Boston Merchants and the Advent of the American Revolution. Boston: Northeastern University Press.