Question

To avoid harm to society, the government often becomes the supplier of a good or service when the respective market

a, would be a natural monopoly, and the good or service is considered essential

b, would be competitive enough to cause surpluses to develop

c, has been engaging in illegal activities that the government seek to eliminate

d, has a high profit, and the government can use those to replace tax revenue

Answer 1

Option A is correct

To avoid harm to society, the government often becomes the supplier of a good or service when the respective market would be a natural monopoly, and the good or service is considered essential.

Government is the only provider of a good or service, there may be opportunities to secure efficiencies through greater use of competition. Two options involve competitive tendering of services or making use of consumer choice in determining how spending is allocated within the public sector .Even in markets that were initially considered as natural monopolies, competition has been effectively used to achieve significant cost savings, improve quality, foster innovation and to develop new products for consumers. Through statutory monopoly schemes, Government provides the essential facilitiesand allows private firms to compete for the operation of these markets within a regulatory framework. This has been applied in sectors such as the postal service, broadcasting, transport and utilities.Government still plays a role as a provider in some markets. Government may choose to act as a supplier of goods and services for social or ethical reasons. For example, in the UK the NHS ensures that all citizens have access to health care. In some cases, assets owned by Government for social, environmental or security reasons have commercial value, which can be used to provide goods and services to consumers. For example, the Land Registry collects information on house purchases, and provides some of this information to consumers and intermediaries., the key point are

• There can be situations where direct provision of goods and services by Government is in the best interests of consumers.
• Where it is the direct provider, Government needs to be aware of the costs of crowding out private sector activity.
• Similarly, Government should ensure that public bodies that compete alongside private firms do not distort the market unfairly.
• In some cases Government can open up new markets by freeing up access to monopoly services – for example by making it easier for private firms to access public sector information.