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The Role of Government in the Market Economy

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A nation will not serve morally or economically when so few have so much, while so many have so little. – Bernie Sanders

Creating, Influencing, Informing, Applying and Explaining are the terms which represent Economics. Economics is a term which is not only related to money rather it involves making choices. It is the science that deals with the study of human behavior as a relation to given ends and scarce means which have alternative uses. It is a branch of knowledge that deals with how the people in the society allocate the limited resources in nature to satisfy their needs and wants.

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A market economy can be defined as an economy where the law of demand and supply influence the production of goods and services. It is an economy where economic decisions and pricing of goods are done by the interaction of producers and consumer who can transact freely.

Government performs a very important role in the market economy. Some of the roles can be discussed as:

  1. Efficiency: There are various work that a government should perform and one of the most important attempts should be correcting the market failure because it is the major component of welfare economics. By not doing this there would be a fall in one’s market and would also have an adverse effect on others. For example: The general argument on the minimum wage laws. They are set above the prevailing market which clarifies wage to raise the market wages. The government fails to do this due to which it often leads to more minimum wage laborers being unemployed and causing social cost that leads to market failure. One more recent event which shows that government fails in providing efficiency. India needs to focus on water efficiency, it has been said that by preserving water resources India would complement the noble vision of doubling farmer by 2022.
  2. Infrastructure: The government has the job to enhance various elements which are essential for the system of the society. Elements such as banking, health facilities, power generation, etc. The finance needed to acquire these facilities are to be provided by the government because they cost very high and the benefits are acquired by numerous diverse groups in the country.
  3. Equity: One of the most important aspects in the market economy is having equity. The government is responsible to provide socially fair and acceptable income to the buyers. The government should help by promoting programmes that provide and promote equity use tax and by also redistributing income to some particular groups. It should also ensure that the resources are not depleted. For example: The government has made laws to protect a certain segment of the population and has also manufactured some certain products to ensure the health and well-being of the consumers.
  4. Bailouts: This is a situation when business, an individual provide money to a failing business to prevent its downfall. It may be in the form of loans, bonds, stock or cash. It skews the market by changing the rules to allow poorly run companies to survive. For example, Home Owners Loan Corporation (HOLC) helped people in their homes by offering 80% financing to those who were at a risk of losing them. It was established during the period of the Great Depression.
  5. Economic Regulator: Government manages and standardizes all the economic activities in the market. Government is the sole and it also acts as a market order defender. It ensures that there is transaction order and they are performed under the legal framework where the legal rights of the consumers and producers to own are protected and recognized.


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