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LONG TERM INVESTMENT DECISIONS

LONG TERM INVESTMENT DECISIONS

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LONG TERM INVESTMENT DECISIONS

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LONG TERM INVESTMENT DECISIONS 2

Reasons why government regulation is needed in a market economy

The main aim of government involvement in the market economy is to achieve efficiency

and equity. These can be achieved when the marginal costs of production and consumption

balance with the marginal benefits of production and consumption (Labonte, 2010). The

expectation of the market is to come close to achieving this result. According to current markets,

this is usually not the case hence some government regulation is needed to enforce this balance.

Private markets produce goods and services that attract a lot of external costs with little external

benefits. For an imperfect competition market, goods and services produced by the market may

not reach the efficiency levels required.

Public goods need regulation so that they cannot be misused. Public goods are available

for consumption for everyone. Public goods are freely available and the firms producing these

goods have a problem in determining the benefits of consuming the good or service. Public

goods include national defense and law enforcement. For example if the government do not

produce laws, we expect some firms to produce the laws. Because of the free nature of the laws,

many of them will not meet the efficiency levels required (Labonte, 2010). The government

should also legislate on protection of consumers as well as ideas and innovations. Government

intervention is necessary so as to ensure efficiency.

External costs are caused by manufacturing firms. These firms do not incur the costs that

arise from their products. For example, a firm may produce goods that pollute the environment.

The cost of pollution will be incurred by the consumer. Private benefits are generated when a

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LONG TERM INVESTMENT DECISIONS Name Instructor Institution Date Reasons why government regulation is needed in a market economy The main aim of government involvement in the market economy is to achieve efficiency and equity. These can be achieved when the marginal costs of production and consumption balance with the marginal benefits of production and consumption (Labonte, 2010). The expectation of the market is to come close to achieving this result. According to current markets, this is usually not the case hence some government regulation is needed to enforce this balance. Private markets produce goods and services that attract a lot of external costs with little external benefits. For an imperfect competition market, goods and services produced by the market may not reach the efficiency levels required. Public goods need regulation so that they cannot be misused. Public goods are available for consumption for everyone. Public goods are freely available and the firms producing these goods have a problem in determining the benefits of consuming the good or service. Public goods include national defense and law enforcement. For example if the government do not produce laws, we expect some firms to produce the laws. Because of the free nature of the laws, many of them will not meet the efficiency levels required (Labonte, 2010). The government should also legislate on protection of consumers as well as ideas and innovations. Government intervention is necessary so as t ...
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