(BQ) Part 2 book "Essentials of economics" has contents: Government intervention, the business cycle, aggregate supply and demand, fiscal policy, money and banks, monetary policy, economic growth, theory and reality, international trade. | Page 172 Source Steve Allen Brand X Pictures PunchStock RF LEARNING OBJECTIVES After reading this chapter you should be able to 1. 1 Define what market failure means. 2. 2 Explain why the market underproduces public goods. 3. 3 Tell how externalities distort market outcomes. 4. 4 Describe how market power prevents optimal outcomes. 5. 5 Define what government failure is. Page 173 The market has a keen ear for private wants but a deaf ear for public needs. Robert Heilbroner A dam Smith was the eighteenth century economist who coined the phrase laissez faire. He wanted the government to leave it the market alone so as not to impede the efficiency of the marketplace. But even Adam Smith felt the government had to intervene on occasion. He warned in The Wealth of Nations 1776 for example that firms with market power might meet together and conspire to fix prices or restrain competition. He also recognized that the government might have to give aid and comfort to the poor. So he didn t really believe that the government should leave the market entirely alone. He just wanted to establish a presumption of market efficiency. Economists government officials and political scientists have been debating the role of government ever since. So has the general public. Although people are quick to assert that government is too big they are just as quick to demand more schools more police and more income transfers. The purpose of this chapter is to help define the appropriate scope of government intervention in the marketplace. To this end we try to answer the following questions Under what circumstances do markets fail How can government intervention help How much government intervention is desirable As we ll see there is substantial agreement about how and when markets fail to give us the best WHAT HOW and FOR WHOM answers. There is much less agreement about whether government intervention improves the situation. Indeed Americans are strikingly ambivalent about government .
