• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

There is no such thing as a successful laissez-faire economy; every successful national economy is supported by a powerful and effective state.' Explain the main functions and limitations of state action in today's economics.

Extracts from this document...


There is no such thing as a successful laissez-faire economy; every successful national economy is supported by a powerful and effective state.' Explain the main functions and limitations of state action in today's economics. 'Laissez-faire' is a term which "has been used as convenient shorthand for the general prescriptions of the classical economists and in particular for a belief in the efficacy of a free market economy. In a more precise from it has been regarded as synonymous with free trade." (Taylor. A 1972 P11) Although many classical economists believed that the free market economy was the best economic system as a nation economic system, in today's economics, an idea of successful national economy is supported by a powerful and effective state. In this essay, the economic system's definition and the characteristics of the three types of economic system will be outlined in turn firstly. It is also provides the fully explanation of the main functions and limitations of government intervention in economy. Finally, the summary that how could government operate well in today's economy will also be concluded. Economic system is "a system for coordinating the actions of all the people in a society in order to decide what to produce, how to produce and for whom to produce." (Economics Lecture Handout, 7th Oct 2004) There are two entire different models of economic system. At the one extreme lies the completely command economy, at the other extreme lies the completely free-market economy. ...read more.


However, free-market economy also has its relative disadvantages which in comparison with the command economy. Sometimes market could not allocate resources efficiently, and even Market Failures. The reasons will be mentioned as following: Public goods such as defence and street lighting will not be provided by the free-market system. Merit goods such as health and education would only be provided for those who willing and able to pay. Demerit goods such as firearms, narcotics and pornography will be freely available in the free-market economy. Lack of social protection for vulnerable group in society and the potential large disparity between the living standard of the rich and the poor will be happened in a free-market economy. Competition may break down especially in industries with very significant economies of scale. "Macroeconomic instability which means market economies tends to fluctuate between booms and recessions." (Economics Lecture Handout, 7th Oct 2004) After explored the disadvantages of free-market economy, it is clear that in a real world economy, mixed economy which government uses its functions to intervene in the market will make a successful national economy. Because of the state could use its functions to solve the problems which might happen in the 'laissez-faire' economy. First of all, governments implement a judicial system to protect property rights. Governments determine the legal framework that sets the basic rules for the ownership of property. This is the primary function of government. ...read more.


For example, producer will produce more amounts of one goods by cutting the quality if the government set award to the one who produced more. Secondly, "The government might enforce its plans even if they were unpopular." (Sloman .J 2004 P23) Therefore, intervention may be designed to obtain shot-term political advantages, not to make the economy work more efficiently. The decision-makers' personal needs may not be always wholly absent from their minds when considering the best policies to adopt. Lastly, due to decision-making is centralized, highly inflexible in respond to change will also be happened. "Regulation, tax rates and expenditure policies are not easily changed. However, market conditions change often, sometimes rapidly." (Lipsey .R & Harbury .C 1992 P236) For example, shortages and surpluses may result mainly caused by the lack of price signals to use resources efficiently. To sum up, as the state intervenes in the mixed economy, it could take an overall view of the economy. Therefore, the governments should collect up-to-date and accurate information, then conduct an appropriate and accuracy input-output analysis so that the state could produce a good distribution of resource investment to achieve high growth rate; could plan the allocation of labour carefully to largely avoid unemployment; could distribute the national income more equally; could take externalities into account and able to predicate these effects and chose to take them into account. With all these conditions achieved, the state would be able to give a powerful and effective support to the national economy, naturally, a successful national economy will be achieved. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Main characteristics of free market economy

    of the work force was unemployed. When transition economies undergo "Price Liberalization", there is a move from fixed price mechanism to a free price system where the prices of the goods and services will be determined by the supply and demand for the good.

  2. The Role of the Informal Sector in the National Economy.

    Men and Women have sprung up on street corners everywhere in order to sell goods and services, and for commercial transactions. They sell fruits and vegetables, cigarettes, soft drinks, alcohol, common consumables, books, second hand clothing, electrical equipment, second hand goods and hardware.

  1. GCSE Economics Coursework

    The total population is increasing, meaning that more housing is needed, in 2002; John Prescott announced that thousands of new homes were to be built in the south east of England. Due to the increase of housing, there is going to be an increase in local population, as well as

  2. Free essay

    What are the main characteristics of a free market economy and centrally planned economy?

    will provide an incentive for the supplier and seller of the business because they are able to obtain greater profits. Unlike in a command economy, the increasing incentive in a free-market will create a great amount of competition between firms.

  1. Toyota Motor Company Limited

    card, that company's goal is to support customers throughout the life of their vehicles and offer one-stop financial services. In particular, Toyota always seeks to offer a wide range of services and link them together; thereby creating synergies that will yield great convenience and benefits.

  2. Retailing In India - A Government Policy Perspective

    Deng Xiaoping's tour of southern China in 1992 provided the impetus for foreign investment, which peaked from 1994 to 1997, when for 4 concurrent years, China was the world's second largest recipient of foreign direct investment (FDI) after the US.

  1. Discuss the view that the free market economy encourages negative externalities and thus the ...

    In an economist's domain, negative externalities can only be evaluated for their impact on efficiency and judgments are made on this basic premise. In negative externalities, it is not a case of eliminating pollution, noise, etc but of attaining the optimal output level in a market economy.

  2. Bellway Plc is a holding company with subsidiaries; its main subsidiary company is Bellway ...

    The area is one of the largest brownfield sites planned for housing in Europe. 9 10/04 - 11/04 Bellway * Postive preliminary results 27 10 03/04 - 08/04 Industry * The 2005 Budget has increased the threshold for stamp duty from �60,000 to �120,00028.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work