Answer to Question #144916 in Macroeconomics for Harshee

Question

Discuss importance of government intervention in a market economy?

Answer 1

In the real world, there has never been an economy that is totally a market economy or a command economy. Real economies combine markets and commands in many different ways. In real mixed economies, the command methods of making allocation and distribution decisions are referred to as government intervention because government intervenes or interferes in the working markets. Examples include the provision of public education, public health care, fundamental science, public parks, road systems, national defense, flood control, minimum wage legislation, restriction on imports, anti-monopoly legislation, tax collection, income redistribution, and so on.

A market economy is not able to operate effectively without some government intervention. Government interventions are able to support such areas of the economy that create non-monetary benefits: science, culture, nature protection, and so on. Also, government interventions are essential during some unusual conditions: pandemic, ecological catastrophe, war, etc.