Government Can Sometimes Improve Market Outcomes

Last Updated: 21 Mar 2023
Pages: 2 Views: 2370

Government’s involvement in the market can sometimes improve market outcomes because the invisible hand on its own may fail to allocate the resources efficiently. The government may intervene to promote efficiency and equity.

The market on its own may cause market failure through externalities and market power. An “externality (is) the impact of one person’s actions the wellbeing of the bystander” (Gans et al. (2009, p.11). An example is pollution. Market economies usually do not consider the impact of their activities for example a dry cleaning factory. It can cause water pollution when they dispose off used chemicals. Government has a task of regulating, auditing and monitoring the activities of the market. Thus they can introduce regulating policies to protect the environment.

Market power is another result of market failure. “Market power (is) the ability of a single economic factor (or a small group of factors) to have a substantial influence on the market prices” (Gans et al. (2009), p.11). These monopolists may charge very high prices or low prices to prevent other firms from entering the market. The government may regulate the prices that monopolists may charge and their activities. The market economy does not distribute income fairly; it rewards people according to their ability to exploit market opportunities. The government economy may introduce taxes or social welfare systems to distribute income equally.

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I had a personal experience in late February in Zimbabwe, in tobacco farming. My family is involved in tobacco farming and it was the selling season. A problem arose whereby some people were selling tobacco on the black-market at a very low cost. These people either stole tobacco or sell it at a very low price or they did not have farming licenses. Without a farming license this was the only solution. This situation was demotivating because their crop was at two risks. One was losing the crop for nothing or selling it to get the original capital. Also, farmers were incurring extra costs of increasing security. The government therefore introduced a policy that did allow selling the cash crop unless they had a farming license.

The policy helped to promote equity and efficiency. Most farmers like my father were prepared to hold on to the crop because they not going to make a profit. Moreover the selling price of tobacco rose, the government set a price ceiling. In addition it helped promote the security of the crop. Stealing the crop would not help since there was no place to sell it.

Therefore, the government can improve market outcomes because all farmers got the chance to sell and protect their crop such that next year they are motivated to plant and sell more.

Related Questions

on Government Can Sometimes Improve Market Outcomes

What can sometimes improve market outcomes?
Government intervention can sometimes improve market outcomes by providing incentives for businesses to produce goods and services that benefit society, such as renewable energy sources. Additionally, government regulations can help ensure that markets are fair and competitive, which can lead to better outcomes for consumers.
Can the government improve on market outcomes at times so it means that it always will?
No, the government cannot always improve on market outcomes. Government intervention in the market can be beneficial in certain circumstances, but it is not always the best solution. Government intervention can lead to unintended consequences, such as market distortions, and can be difficult to reverse.
Can the government improve market outcomes if market inequalities or market failure exist?
Yes, the government can improve market outcomes if market inequalities or market failure exist. This can be done through the use of policies such as taxation, subsidies, and regulations that can help to correct market failures and reduce market inequalities. Additionally, the government can also provide public goods and services that can help to improve market outcomes.
What can the government do in a market economy?
In a market economy, the government can set regulations and policies to ensure fair competition and protect consumers. They can also provide incentives to businesses to encourage investment and economic growth. Additionally, the government can provide public services such as infrastructure, education, and healthcare.

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Government Can Sometimes Improve Market Outcomes. (2018, Jan 03). Retrieved from https://phdessay.com/government-can-sometimes-improve-market-outcomes/

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