Inescapable Interdependencies

Laissez-faire with minimal government intervention might be a good system if the idealized conditions listed above were truly present. In reality, each and everyone of the idealized conditions enumerated above is violated to some extent in all human societies. Most production takes place in units too large for truly perfect competition.

Unregulated factories do tend to pollute the air, water, and land. When contagious diseases threaten to break out, private markets have little incentive to develop effective public-health programs. Consumers are sometimes poorly informed about the characteristics of the goods they buy. The market is not ideal. There ‘are market failures.

In other words, government often deploys its weapons to correct important market failures, of which the most important are the following:

• The breakdown perfect competition. When °monopolies or oligopolies collude to reduce rivalry or drive firms out of business, government may apply antitrust policies or regulation.

Externalities and public goods. The unregulated market may produce too much air pollution and too little investment in public health or knowledge. Government can use its influence to control harmful externalities or to fund programs in science and public health. Government can levy taxes on activities which impose external public costs (such as cigarette smoking) ,or it can subsidize activities which are socially beneficial (as education or prenatal health care).

• Imperfect injurious. Unregulated markets- tend to provide too little information for consumers to make well-informed decisions. In an earlier era, hucksters hawked snake oil remedies that would just as easily touchily as cure you. This led to food and drug requiring that pharmaceutical companies provide extensive data on the safety and efficacy of new drugs before they can be sold. The government also requires that companies provide information on energy efficiency of major household appliances like refrigerators and water heaters. In addition, government may use its spending power to collect and provide needed information itself, as it does with automobile crash-an Safety data. Clearly, there is much on the agenda of’.possible allocation problems for government to handle.

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