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What is your understanding of the justifications for government involvement in the economy? What are the...

What is your understanding of the justifications for government involvement in the economy?

What are the four principal activities of government in the economy? How do you feel about such involvement?

Do you see it as a necessary aspect of government or as a hinderence to a free economy? Why?

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Answer #1

Government intervention is necessary but it may have some negative consequences. It may increase the efficiency in the economy but government intervention in a very large extent may also lead to inefficiency in the economy. It is necessary to ensure fair and efficient distribution of wealth and to make the products and services available to all the individuals in the society in an affordable manner. market failures such as problem of free riders, moral hazard, and asymmetric information can only be tackled through the involvement of the government.  

The four principal activities of government in the economy includes assigning property rights, providing various public services such as health care, education services to the society in an affordable manner, regulating the market to reduce market failures caused from free market, and to reduce poverty and inequality in the society. Such government involvement is necessary for the economy as it increases the welfare of the individuals.

The best and efficient market is the one which works freely with some amount of government intervention. So, some amount of government involvement is necessary for the free market to work efficiently and with no failures. Government intervention helps the free market to deal with market failures that have a negative impact on the society.  

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