Principles of Economics - The Government
Governments Can Sometimes Improve
Market Outcomes
The ten principles of economics unify the several central ideas that revolve around the study of economics. Focusing on the seventh principle, it is seen to be concerned with how people in an economy interact with one another. The seventh principle states that, ‘Governments Can Sometimes Improve Market Outcomes.’ (Mankiw, G. N., 2012) It is a common belief that markets are a powerful way of organizing society’s scarce resources efficiently. However, markets may not always be absolutely perfect at achieving that.
A government might step into a market economy for three essential reasons. Firstly, the presence of rules and regulations, especially the enforcement of property rights by the government, is of key importance to a market economy. In a recent reporting by the Townhall Magazine, India was observed to be going in a wrong direction, being completely against intellectual property, patent and copyright protection. This is expected to severely effect India’s key industries as well as broader relations with the United States and Europe. (Kerpen, P., 2013) On the other hand, expats living in Indonesia could soon get property ownership rights after the government announced it wants to open up the residential real estate market to foreigners (Clancy, R., 2013). This, in turn, could increase investments from foreign companies to Indonesia and expats would be contributing more to the state income through taxes if they were allowed to own property.
Secondly, a government may also step in in the presence of market failure, a situation in which the market fails to produce an efficient allocation of resources. One possible cause of market failure is an externality, an example being pollution. China’s government is currently planning to fast-track expansion and investment in energy saving technologies in an attempt to tackle its worsening pollution problems. China's massive economic growth has come at a major cost
Market Outcomes
The ten principles of economics unify the several central ideas that revolve around the study of economics. Focusing on the seventh principle, it is seen to be concerned with how people in an economy interact with one another. The seventh principle states that, ‘Governments Can Sometimes Improve Market Outcomes.’ (Mankiw, G. N., 2012) It is a common belief that markets are a powerful way of organizing society’s scarce resources efficiently. However, markets may not always be absolutely perfect at achieving that.
A government might step into a market economy for three essential reasons. Firstly, the presence of rules and regulations, especially the enforcement of property rights by the government, is of key importance to a market economy. In a recent reporting by the Townhall Magazine, India was observed to be going in a wrong direction, being completely against intellectual property, patent and copyright protection. This is expected to severely effect India’s key industries as well as broader relations with the United States and Europe. (Kerpen, P., 2013) On the other hand, expats living in Indonesia could soon get property ownership rights after the government announced it wants to open up the residential real estate market to foreigners (Clancy, R., 2013). This, in turn, could increase investments from foreign companies to Indonesia and expats would be contributing more to the state income through taxes if they were allowed to own property.
Secondly, a government may also step in in the presence of market failure, a situation in which the market fails to produce an efficient allocation of resources. One possible cause of market failure is an externality, an example being pollution. China’s government is currently planning to fast-track expansion and investment in energy saving technologies in an attempt to tackle its worsening pollution problems. China's massive economic growth has come at a major cost