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Transcript
The People Thursday Date: 09.06.2016 Page 11 Article size: 201 cm2 ColumnCM: 44.66 AVE: 56369.33 Why government intervention in economy is necessary In a free market economy, the basic (education, health, security) and ex resource allocation decisions (What ternalities (social benefits and social to produce? How to produce? and for costs). Whom to produce?) are determined by the market forces of demand and sup ply. The price mechanism therefore is seen as the "invisible hand" which leads to the efficient allocation of re sources. government, therefore, relate to the as pect of the fiscal and monetary policies Creation of a framework for rules aimed at maintaining a high and even and regulations remains a crucial role level of the economic activities. for the government in the economy. Competition in various sectors This is to ensure that there is "fair play" of the economy is important. This is among all the players or agents in the because where competition exists economy i.e. consumers and the pro we get a wide variety of goods and However, there has been a gradual ducers. The creation and the enforcement shift from capitalist form of economies, where government plays no part on of such rules and regulations is only resource allocation, to mixed econo possible through Government Au mies where government has a greater thority such as KEBS, CAK, ERC, IRA involvement in resource allocation. and CMA to regulate their respective There are several reasons why the gov industries. These rules and regula ernment intervenes in the economy. tions usually relate to, among others, Market failure is one of the main property rights, standards of hygiene, causes of government involvement quality standards, working conditions, in economic activities. This refers to contracts and restrictive practices. a situation whereby the price mecha Through this, the government ensures nism would either produce the wrong that there is soberness among the vari amounts of certain goods and services ous players in the industry thus mini or fail to allocate sufficient resources for mising conflicts. One major objective of the govern the production of certain other goods. This is usually the case of the public ment is to promote the general eco goods (street lights etc) merit goods the time. The stabilisation functions of nomic welfare of citizens. A means to services. In addition, competition results in better quality products at fair prices. The evolution of the free market economy more often results in monopolies and oligopolies which have the effect of undermining effi cient allocation of resources among the competing uses. The government, therefore, finds it necessary to intervene in the economy to maintain competition by, for exam ple, passing antimonopoly legislation which seeks to limit any supplier from developing the monopoly control of any particular product or service. —1he writer is an Economics lec turer at Catholic University of East AJrica(CUEA). wards this end is to ensure that there is equitable distribution of incomes and wealth. Many developing countries experience serious income distribution disparities with their national incomes being concentrated in the hands of a small proportion of the population. The government can achieve fairness in the distribution of income through a system of taxation which bears more heavily on the rich. After raising the revenue from taxation, the govern ment can improve the welfare of the less privileged through provision of education, affordable medical care and better housing. Stabilisation of the economy still re mains one of the most crucial functions of the government. Modern economies are subject to much instability such as unemployment, recession, inflation, balance of payment deficits, exchange rate fluctuations, among others. The government through the use of fis cal and monetary policies has the re sponsibly of ensuring that the levels of economic activities remain stable all Ipsos Kenya Acorn House,97 James Gichuru Road Lavington Nairobi Kenya