In a market economy, government intervention?

Question

a. will always improve market outcomes.
b. reduces efficiency in the presence of externalities.
c. may improve market outcomes in the presence of externalities.
d. is necessary to control individual greed.

Answer 1

"A", like most multiple choice answers that include the word "always", is not true.

"B" may be possible in certain specific cases, but this is not how it's supposed to happen

"C" is probably what they are looking for. When mainstream economists are arguing for some kind of gov't intervention, they usually say it is a correction for market failure due to externalities.

"D" is quite true in my opinion, but I still think "C" is a better answer

Answer 2

Here in the U.S we tried the free market of Smith. This led us to the Great Depression in 1929, where gold could no longer back our currency. The free market alone is flawed because when there was a run on wall street there were no government using a slide of hand "Keynes" to prevent it. Roosevelt enacted the "New Deal" that brought Keynes into the equation, and after two world wars and trillion dollar deficits our market has never came close to crashing as it did in 1929.

Answer 3

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RE:
In a market economy, government intervention?
a. will always improve market outcomes.
b. reduces efficiency in the presence of externalities.
c. may improve market outcomes in the presence of externalities.
d. is necessary to control individual greed.

Answer 4

c

That's the raison d'etre of goverments' intervention in a market economy.

Answer 5

I believe there is a tie between answer c and d .

Answer c is correct. Externalities are the cost incurred by society such as envionmental pollution. Govt intervention is needed to regulate environmental protection and control harmful practice by firms .Market are efficient when social efficiency is also met. Even if consumer prices are increased to compensate the private cost faced by firms to find alternative methods of production. (They have to invest in research and development for both environmentally and cost-effective methods), but social goals have been achieved.

answer d is also true. Govt controls individual greeds by taxing the richer higher than the poor, setting up agencies to protect consumers rights, fair business practice etc..

a and b are wrong, bcoz centrally controlled(command) economies like the Eastern bloc countries, have not had much economic prosperity during communism era, bcoz they lacked market efficiency which would have pan out if there was a system of supply/demand.

Answer 6

c