When the production of all goods and services is left to private markets, there is a
tendency to produce too much of some goods and insufficient amount of other goods. In
extreme cases certain goods will not be provide data.
a)Clearly illustrate how does the policy of laissez fair ecause markets to fail.
b)To what extent and how should the government intervene in the production of goods
andservices?
c)In light of the Coase theorem,governmenti ntervention is probably not needed to solve
major externalities andbpublic goods problems.Discuss
a) Laissez-faire economics is an economic system in which the government does not intervene in the production of goods and services. This can lead to market failure because it does not take into account externalities, public goods, and other factors that can affect the production of goods and services. Without government intervention, the market may produce too much of some goods and too little of others, leading to an inefficient allocation of resources. This can lead to a situation where certain goods are not provided at all, or are provided at a price that is too high for some people to afford.
b) Government intervention in the production of goods and services can help to ensure that the market produces the right amount of goods and services. This can be done through the use of taxes, subsidies, and regulations. Taxes can be used to discourage the production of certain goods, while subsidies can be used to encourage the production of certain goods. Regulations can be used to ensure that certain standards are met in the production of goods and services.
c) The Coase theorem states that when transaction costs are low, the market will be able to efficiently allocate resources without the need for government intervention. However, in reality, transaction costs are often high, and the market may not be able to efficiently allocate resources without government intervention. In addition, the Coase theorem does not take into account externalities and public goods, which can lead to market failure. Therefore, government intervention may be necessary to solve major externalities and public goods problems.