Extent of Government Interference to Ensure Smooth Functioning of the Market Forces

Introduction

Economics is a branch of social science that deals with human behavior in relation to decision regarding investment, production, distribution and consumption with regard to human activities that meet their needs by using available resources. In economics, market is a process where producers and consumers interact and take decision through negotiation. Demand and supply of goods and services are treated as market forces in a market economy system.

Economic system comprises of socialistic, capitalistic and mixed system. The concept of private ownership is absent in socialistic system where all resources are owned by the state. Capitalistic system is commonly known as market economy where prices of goods and services are freely set based on the laws of demand and supply. Here all resources are owned by individuals and decisions about allocation of those resources are made by individuals. No significant role of the government is necessary in market economy. But, to meet the emerging changes, economic system needs to be adjusted which has launched the mixed economic system. Though market economy is open in nature, the government may interfere for smooth functioning of market forces.

The purpose of this paper is to evaluate the interference of government in a market economy system. The extent of that interference has also been critically analyzed.

Extent of government interference to function market Forces

In a market economy, the customers have freedom of choice to access in or exit from the market. Here through competition, consumers get quality product with low prices. In such an economy system, the government has no role to control except under the following cases.

1. To ensure smooth functioning of market 2. To collect revenue 3. To protect local product 4. To protect the market failure 5. To defend interest of the people by taking steps to prevent adulteration of food etc. 6. To ensure free floor of goods 7. To ensure right flow of information 8. To protect the rights of producers and consumers by control syndication and manipulation.

Concluding remarks

Though the government has some power to interfere with the market forces, it can be said that such interventions should aim at working with the market system that is already existing rather than implementing policies that make great changes. If the government intervention is such that it introduces inefficiencies greater than rationalizing the entire market system, there is a threat of damaging the economy. The distorted government intervention can lead to consumer dissatisfaction and higher costs. Most of the economists are of the view that government interventions should be facilitating in nature rather than having a direct control over the market. In fact, government intervention should continue not more then the smooth functioning of the market forces.