Government's Involvement or Role in the Marketplace - Managerial Essay

Governments Involvement or Role in the Marketplace - Managerial Economics - Essay ExampleEconomists often assume that market places are perfectly warlike and that all information necessary to make rational decisions is available.. But this is not always true. Sometimes the market is far from being competitive, there is lack of up to(predicate) information for participants, and a single buyer or seller, or a small group of buyers and sellers, whitethorn be able to control market prices. This queen exercised by monopolists and oligopolists is called market power. Market power can cause markets to be inefficient, keeping price and quantity away from the supply-and-demand equilibrium (Mankiw, 1998 Samuelson and Marks, 1995). There are instances when troupe as a whole is not well served therefore, it is incumbent on the government to intervene, usually for two reasons to promote efficiency (enlarging the economic pie), and to promote faithfulness (ensuring a better division of the p ie).To make their analysis simple, economists often assume that market outcomes matter only to the buyers and sellers, but in real life decisions by market participants sometimes affect people who had nothing to do with the market at all. Such side effects, called externalities, cause welfare to hinge on to a greater extent than just values and costs when buyers and sellers decide how much to consume and produce, thus the market equilibrium can become inefficient from the viewpoint of society as a whole.Market power and externalities are what constitute market failure which means that the market, unregulated and left on its own, fails to allocate resources efficiently. When markets fail, public policy may be able to provide a remedy to the problem situation and perhaps increase economic efficiency. The government intervenes in the hope of improving market outcomes. However, it is by no means certain that government intervention can improve the state of