Consider this statement......?
"Government involvement in markets is inherently inefficient.” Do you agree or disagree? Explain.
Answer:
The easy answer to you question is yes. For the most part government involvement creates inefficiency. However, the job of the government is not to make a market efficient, but rather, to maximize social wellfare.
For example, public transportation is a natural monopoly in a lot of cases. This means that from the perspective of the collective (society) this market is most efficient with only one supplier. Never the less, monopolies on basic needs are a sure way to make your constituents angry, so the government must regulate to make sure the market maximizes consumer surplus, at close to zero profit for the firm.
It is well stablished in literature that there is an efficiency - income tradeoff, where the regulator must choose an optimal balance between making the market as efficient as possible, and paying "information rents" to the firms to incentivate them into revealing their true efficiency.
So in conclusion, yes government involvement creates inefficiency for the most part, but in many cases it is absolutely necessary to ensure the maximum social wellfare.
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Answer:
The easy answer to you question is yes. For the most part government involvement creates inefficiency. However, the job of the government is not to make a market efficient, but rather, to maximize social wellfare.
For example, public transportation is a natural monopoly in a lot of cases. This means that from the perspective of the collective (society) this market is most efficient with only one supplier. Never the less, monopolies on basic needs are a sure way to make your constituents angry, so the government must regulate to make sure the market maximizes consumer surplus, at close to zero profit for the firm.
It is well stablished in literature that there is an efficiency - income tradeoff, where the regulator must choose an optimal balance between making the market as efficient as possible, and paying "information rents" to the firms to incentivate them into revealing their true efficiency.
So in conclusion, yes government involvement creates inefficiency for the most part, but in many cases it is absolutely necessary to ensure the maximum social wellfare.
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