We are beginning to get a picture of how governments direct and interact with the economy. Let's examine the four major functions:
The first function is improving economic efficiency. A central economic purpose of government is to assist in the socially desirable allocation of resources. This is the micro economic side of government policy, it consternates on what and how of economic life. Microeconomic policies differ among countries according to customs and political philosophies. Some countries emphasize hands off, laissez faire approach, leaving most decisions to the market. Other countries lean toward heavy government regulations, or even ownership of business, in which government planners make production decisions.
The second function is the limits of the invisible hand. This invisible hand result holds only under very limited conditions. Perfectly competitive firms must produce all goods efficiently. All goods must be private goods like loaves of bread, the total of which can be cut up into separate slices of consumption for different individuals, so that the more 1 consume out of the total, the less use consume.
Laissez faire with minimal government intervention might be a good system if the idealized conditions listed above were truly present. In reality, each and every one of the idealized conditions enumerated above is violated to some extent in all human societies.
The first function is improving economic efficiency. A central economic purpose of government is to assist in the socially desirable allocation of resources. This is the micro economic side of government policy, it consternates on what and how of economic life. Microeconomic policies differ among countries according to customs and political philosophies. Some countries emphasize hands off, laissez faire approach, leaving most decisions to the market. Other countries lean toward heavy government regulations, or even ownership of business, in which government planners make production decisions.
The second function is the limits of the invisible hand. This invisible hand result holds only under very limited conditions. Perfectly competitive firms must produce all goods efficiently. All goods must be private goods like loaves of bread, the total of which can be cut up into separate slices of consumption for different individuals, so that the more 1 consume out of the total, the less use consume.
Laissez faire with minimal government intervention might be a good system if the idealized conditions listed above were truly present. In reality, each and every one of the idealized conditions enumerated above is violated to some extent in all human societies.
