Question

The growth of economies seems to go hand-in-hand with the growth of government involvements in the economy, including the explosion of regulations. Pick an industry and discuss the role of regulations in influencing the conduct of firms in the industry.

Answer 1

Answer) Ideally in case of neoliberalism, the government should not intervene in market. The prices should be determined by the forces of demand and supply. The government intervention is needed to correct the market failure and overcome information asymmetry.

In case of defense industry, the government of any nation enjoys monopsony power. As the government is the only buyer of defense good which is a public good. Since defense is a vital aspect of nation security government can provide these firms favourable incentives like tax deduction, subsidy in electricity, and more allocation of resources.

All these extra income support could make firm less efficient. Thereby causing fall in the quality of good. However the government of United States is also engaging in the export of defense good. So that the extra production won't hinder the efficiency. But trading export revenue can be earned from nations like Saudi Arabia.