discuss in general term why the government needs to intervene in business activity?
Soluções para a tarefa
Resposta:The functioning of the economy, at first, does not need government intervention. For example: when a drought destroys the bean crop, the price of beans goes up. Faced with the higher price, people start to buy less beans, and replace it with another cheaper food. This means that demand for beans falls, reducing pressure on their prices. On the other hand, traders will import beans, to take advantage of the opportunity to profit from higher prices. By placing this import on the market, the scarcity of the product will decrease, with a new impulse to falling prices.
There is, therefore, a mechanism for automatic adjustment of the economy: scarcity raises prices and the increase in prices induces an end to scarcity. In a situation like this, there is no need for the government to interfere with the economy, as it adjusts itself.
There are, however, situations in which the market does not adjust itself, they are called “market failures”. When the market fails, government intervention can be important to put society at a higher level of well-being. But there are also “government failures”: the problems that the government causes when it intervenes in the economy.
Whenever a government announces a new program or a new law, the citizen-voter who wishes to analyze the benefits and costs of this intervention may ask: what is the market failure that it is trying to correct? Will this intervention not generate “government failures” that will worsen general well-being?
To answer these questions, it is necessary to know the nature of “market failures” and “government failures”. This text deals with the first part of the problem: market failures. It analyzes why and how the government can intervene in the economy to resolve such failures. The text does not represent a defense of the intervention methods presented. Many of the intervention possibilities presented here tend to generate strong “government failures”. A text dealing with government failures will be presented in due course.