Question

Government Failures

For your main (initial) response, construct thoughtful and detailed responses to the Discussion. After your initial response, post at least two substantial responses to your classmates and instructor's posts in order to earn full credit.

The role of a government in the market economy is one of the most debated issues in economics. Similarly, one of the most enduring debates on U.S. economic history focuses on the role of government in the economy. Some argue that government regulation of the U.S. economy is too little and too late. On the other hand, there is also a claim that the U.S. economy is no longer a free market due to too many regulations.

Read the Last Word piece, "Government Failure" in the News, in Chapter 5 in your textbook. Investigate the use of special-interest lobbyists and its connection with the government failures.The process of lobbying legislatures is itself becoming a big business. State legislatures are under the same kind of pressure from interest groups as the Senate and the House of Representatives.

• What are the roles of government in the market economy? Based on the current economic conditions, to what extent should the government intervene in the market economy?

• What are the justifications given in favor of more government involvement in the market economy? What are the reasons given in favor of less government involvement in the market economy?

• Provide an example to discuss how special interests can succeed in perpetuating policies that are opposed by the majority of voters because the costs of organizing and motivating groups to take political action increase with group's size.

Answer 1

Government has four major roles in market economy. Initially to build effectiveness i.e, to address market failure like monopoly and contamination so as to advance the smooth working of the financial framework . Furthermore the governments job is to give appropriate infrastructure. Appropriate infrastructure leads to more production. Furthermore Government ought to give value through the utilization of taxes and spending so as to redistribute earnings among various groups of people.Furthermore the government ought to encourage economic development and stability by diminishing unemployment and inflation.

The legislature can intervene in a market economy upto the point which isn't taken as a market economy.

The justification given for greater government contribution in a market economy is to prevent the occurrence of recession,to acquire a fall in negative externalities,redistribution of income i.e, regulation of taxes, generation of increasingly open products rather than private products and so on.

Less government intervention is required as greater government intervention will in general cause inefficient allocation of resources.Less government intervention will prompt distribution of resources.Government intercession removes opportunity to choose how and when to produce.With less govt intercession the market gets effective in choosing how to produce and when to produce.Government chooses wrong choice as they are pressured by political parties and spend in inefficient projects which brings less result.

This issue suggests that special interest like associations can propagate unpopular approaches as long as the expense of arranging a restriction is more than the cost ,the individuals in general suffer because of the policies.Example Consumer Federation of America is an association of non profit organisation which works for consumers.This affiliation pressurized the Consumer Product Safety Commission to pass new rule which would defend kids from magnets which were powerful and numerous kids died while playing with magnets.