The government should interfere if free markets are inefficient. In an optimally effectual market, resources are flawlessly assigned to people who need the quantities they require. Inefficiency, however, may take many different forms; for instance, some individuals may have too many resources when compared to others. In such a case, government interference may combat this inequality through subsidies, taxation and regulation. The current paper addresses the degree to which the government should interfere with the operations of free markets because invisible hands and minimal government interventions guide free markets in some of its efficient special areas.
Maximizing Social Welfare
An unregulated inefficient market is characterized by organizations and cartels which wield the power of monopoly. They rise to limit infrastructure development and hike entry costs. Consequently, businesses are prone to produce negative externalities deprived of consequences if regulations do not exist, thus, diminishing stifled innovation, resources, and trade as well as its associated benefits. Through regulation, the government can directly address these issues.
Socio-Economic Reasons
The government can chip into free market operations to promote general economic fairness. Through welfare programs and taxation, the government can relocate financial resources from wealthy free-market regions to regions that are most in need. It can also pass employment laws to offer protection to a given population segment and regulate the production of certain commodities for the well-being and health of customers.
Micro-Economic Reasons
The government can interfere with the free market operation to minimize the damages of economic events that are naturally occurring. Inflation and recessions, which are a portion of the natural commercial cycle, have an overwhelming impact on residents. Through manipulation of cash supply and subsidies, the government can reduce the harsh effects of the economic drive on its citizens.
Conclusion
Where free market operations are inefficient, the government’s interference stabilises the entire economic status of the nation. It ensures free and fair trade as well as consumer’s well-being and protection.
