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Government intervention in The Market System

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Introduction

Government involvement in the economics of a country destroys the concept of a free-market economy. If the goods and services produced are subject to the forces of the market only, it is likely, under most circumstances, that both the producer and the consumer will reap the benefits. The market mechanism is such that the price it eventually settles on is reasonable for both the consumer and the producer. If the government is not involved in the market for at least some consumer products, then the hazards of a free-market economy would come into play. In the case of goods that are inelastic in nature; that is, the goods which are a necessity and for which there is no substitute, it is likely that the producers would exploit the consumers by raising prices, in order to obtain maximum profit. ...read more.

Middle

Or as in the extract above, they may pass laws, banning exports of the product, and relaxing import duties. One advantage of government involvement in the market, is that they impose duties on foreign items thereby protecting local industries. In the production of sugar for example, developed countries may possess state-of-the-art machines to convert the sugar-cane into sugar in the most cost-effective manner, and may thus be able to sell sugar in the world market at lower prices while retaining the same profit. In such cases, the government imposes taxes on such imported goods, so that the local producers can still cmpete with them. Another very important function of the government is that it ensures that the local population is not at a loss in any possible way. ...read more.

Conclusion

In a free-market economy where profit motive reigns sovereign, the production of these goods will continue as long as there is demand. In such cases, too, government intervention is necessary; it may discourage the consumption of such products by imposing high taxes on it, for example. Thus in conclusion, it may be said that government intervention is a blessing for the consumers and producers alike. Not only does this intervention ensure the direct well being of the masses, it also ensures other advantages- social benefits- by ensuring that the production of not just sugar and food products, but all goods, does not harm society in any way- environmentally, socially, through noise pollution, etc. On a cost-benefit analysis, the costs of government involvement are minimal compared to its advantages. ...read more.

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