Question

For each part below, write a short essay (around 8 sentences) to provide arguments for and/or against the claim presented in that part: (a) (10 points) ”Governments should not try to regulate or interfere with free markets as any such behaviour is bound to cause inefficiency.” (b) (10 points) ”Price mechanism is an effective tool that can be used to achieve efficient provision of public goods.”

Answer 1

Explanation:

a) A free market would allow the laws of demand and supply to flourish; prices of commodities will be set by manufacturers based on demand. However, Government regulations which interfere with the free market is going to result in feeling the pain of monopoly.

b) Indeed, the price mechanism when controlled by the government can result in efficient provision of public goods.

One such example of a public good ls PMS (premium motor spirit) used as petrol in most vehicles. Controlling the price of petrol by the government in most cases helps avoid excessive charges from petrol stations per pump price.