Let me give you two specific government activities that
come about because of market failures:
First, there is the
provision of police protection. Police protection is, in general, a public good. It
would be very hard to have a private police force that would only protect those who pay
for the service (how would they do traffic patrols, for example). Therefore, the market
will not provide this service and the government
must.
Second, there are laws against firms polluting the
environment. This is because pollution is an externality. If the government simply
allowed pollution to happen, it would have impacts on people who did not even buy
products from the firm that did the polluting. This is an example of a negative
externality. To prevent this, government regulates the degree to which industries can
pollute.
No comments:
Post a Comment