excise. Four Main Functions of Government in a Market Economy: However, according to Samuelson and other modern economists, govern­ments have four main functions in a market economy — to increase effi­ciency, to provide infrastructure, to promote equity, and to foster macroeconomic stability and growth. The use of interest rate and money supply to control inflation. In a market economy, individuals and private companies play more of a central role than the government. When a good, like education, exhibits external benefits: ​A. The law of diminishing returns states that as income increases, there is a diminishing marginal utility. The proper role of government in a capitalist economic system has been hotly debated for centuries. In this unit, we start exploring the arguments for and against government intervention in an otherwise competitive market. This means that the price of bananas may be influenced by certain government policies but is mainly driven by consumers and companies going about their business. After that the government should let the forces of personal initiative, human ingenuity and hard work play freely in the economy. A government devises monetary policies to keep the economy growing at the desired pace. The Role of Government in a Market Economy
  • Provide a Legal System to make and enforce laws and to protect private property rights. The government is allowed to be a PART of the market economy, and its institutions and organizations fall under the public sector of the market economy… What is legal, and what is not! Start studying 5 Roles that Government Plays in the Economy. In the narrowest sense, the government's involvement in the economy is to help correct market failures or situations in which private markets cannot … 1. The core of economic restructuring lies in balancing the relationship between the government and the market. Economic inequality is also minimized in a mixed economy because income gets redistributed through taxation and government subsidies. (66% of bankruptcy-related to health costs – CNBC) Economies of scale in government provision. Government health care can prevent the stress and costs of going bankrupt from medical bills. These functions are: 1. Long-term policies to increase productive capacity.
  • Correct Market Failures such as external costs and economic slowdown (unemployment). Decreasing interest rate and increasing money supply. We examine the conditions for allocative efficiency, using the marginal social benefit and marginal social cost principle, and the ways in which externalities, public goods, and the market distribution of income create market failures even in competitive free-market economies. The government could take a larger role than what a market economy prescribes. In this unit, we start exploring the arguments for and against government intervention in an otherwise competitive market. Disadvantages of expansionary monetary policy, Consumption + Investment + Government spending + (Exports - Imports), Income tax , Corporate tax, Inheritance tax, An example of a progressive tax in Thailand. can justify government intervention on market efficiency (economic) criteria. 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