Role of government in correcting market failure
Market failure is very common in many markets in the world, it occurs when a well -established market fails to allocate resources properly. There are many types of market failures that exist but failure of the market on resources will be the main focus of the paper. It is the desire of any government to have a resourceful market because market is one of the major pillars of the economy. When market fails, the whole economy of the country fails and that is why the government intervenes in case a market fails. There are many causes of market failure and that is where the government put a lot of pressure in order to rectify. The government has a major role to play in the market and its efforts cannot be ignored. The objective of the paper is to describe the role of government in correcting market failure being resourceful.
Market fails to be resourceful when there is no competition or when competition is not sufficient. This occurs when the market experiences a high rate of mergers where many companies merge to form one big company. In this case a monopoly power is created in the market. This monopoly power prevents production because other companies or producers have no chance of venturing into the market in any way. This monopoly makes even the government to compromise with it because it gives the government threats of moving out of the market which means that the whole market would collapse. This kind of market cannot be productive in any way. However, the government has a major role in correcting this failure and it has all that it takes to correct it. The government should pass regulations that can be used to control this problem for example the government can introduce a price control regulation, this would introduce a fresh competition in the market and thus the market would be resourceful. A good example is the introduction of more telecommunication services in Britain; this broke the monopoly power that existed in that market (Samuelson, 2010).
Government can introduce tax relief plan in the market, this is a step of government to give some business a period in which they should not pay tax. This occurs if the market failure to be resourceful is as a result of immobility of resources. Resource mobility is one of the dangerous problems that occur in every market. Labor, entrepreneurship, capital and land are supposed to move freely in a health market but these changes when all stakeholders in the market decide to move to another market. This action leaves the market without stakeholders and also the unemployment increases dramatically. The government can correct this market failure through introducing a tax relief in the market. The tax relief encourages firms to stay in the market and more to venture in the market and still the resources will be moving freely. And a good example is the application of tax relief to United States textile industries in 2000 (Hetzel, 2012).
In most cases, a market that is dominated by the government more where governments corporation are more than the private companies, that kind of market in most cases is not usually resourceful. This is because Government Corporations are usually mismanaged and they also experience a lot of difficulties and thus they are not preferred by many consumers. This makes the market to be stagnant and thus it fails to be resourceful. The government has the capability of correcting this market failure because the market failure is as a result of government actions. It can correct this failure by privatizing most of its corporations. This is where the government gives individuals the right to manage the corporations fully. It can also give the private companies the right to carry some of its public operations like building roads. A good example is the Britain government that gave the private business the right to build roads and to manage prisons. This is one of the effective roles of government in correcting this market failure.
According to Munday (2000), market also fails to be resourceful because of lack of information by the consumers about the product in the market. The government can correct this type of market failure by passing policies and rules authorizing all the stakeholders in the market to brand their products and also to release all the information about the products in the market. This helps the consumers to get all the information about the products and thus they are given a chance to evaluate the market. For example is the United States rule that authorize cigarettes manufactures to label the products and all its negative effects. This makes the consumers to make informed decisions and thus the market becomes popular and resourceful.
To wrap it up, the role of government in the market cannot be ignored because without the government intervention in the market, the market would not be resourceful at all. The main role of the government in the market is to correct all the market failures that are experienced in the market. All the steps that government takes to correct the market failures are all appropriate they are usually for the benefit of all the stakeholders in the market.
Hetzel, R. L. (2012). The great recession: Market failure or policy failure? Cambridge: Cambridge University Press.
Munday, S. C. R. (2000). Markets and market failure. Oxford: Heinemann.
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. New Delhi: Tata McGraw Hill.