Question

A market economy needs innovators and entrepreneurs in order to experience growth and increased productivity. What is one of the important roles of the government in facilitating this process? A. Providing transfer payments to its citizens B. Preventing firms from entering bankruptcy C. Protecting monopolies from competition D. Protecting private property rights

Answer 1

The correct answer is D. Protecting private property rights.

In a market economy all market agents exchange goods and services for a fee. The difference between income from sales and production costs generates the economic benefits for the company that supplies them.

Companies and entrepreneurs can reinvest the profits and increase the volume of business when they consider necessary to improve their performance or volume of business. They need be sure that all the capital accumulated belongs to each individual capitalist (accionist, partner, owner, etc.). The government have the purpose of guaranteed that right: Private property rights.  

When an innovation is introduced into the market, at the beginning income can increase very fast because it is a new product which is accepted by the consumer market, so the innovator have a period of a kind of monopoly. Then, others competitors enter in the market as producers, so the price can low because of the effect of the competition. So, it is very important to protect de patent of the innovacions to encourage innovators to invest capital in innovations and to get benefit about it.

Lots of innovations can help other companies or people to reduce their costs or increase their productivity, which help to increase their productivity, and in aggregate terms it can impulse an increase of the productivity of all the economy. The consequence of the productivity increase is the grow of the economy.

For example, the develop of the informatic and internet had helped to increase the productivity in all the global word. The government of innovatives countries helped to the global economy by guaranteeing the private rights of that innovators.