It was suggested by Adam Smith in 1776 that individuals led by self interest, accidentally advance the interests of society.

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HND Social Science

Public Sector Economics

Unit Number: 6420222

Outcome, 4

Langside College Glasgow

Author: Alex Leckie

Lecturer: Janet Cole

Submission: 29/01/2003

It was suggested by Adam Smith in 1776 that individuals led by self interest, accidentally advance the interests of society. If this is true and the selfish free market economy efficiently allocates resources at minimum cost, why is there a need for any government intervention in the economy? A simple answer for this is the concept of Market Failure.

Market failure is the incapacity of an unfettered market to efficiently allocate resources in certain situations. There are diverse reasons why efficiency may not be achieved some of these are:

Public and Merit Goods

Many goods and services that we take for granted would not be provided for in an unregulated free market without government intervention. The legal system, defence forces, schools, roads and health services are just some of the benefits we receive due to this intervention. Admittedly the private sector has recently become involved in some of these but all are still very much regulated by the government.

A pure public