Long Term Investments Decisions

Long Term Investments Decisions

Eco-550

December 20th 2012

Explain why government regulation is or is not needed, citing the major reasons for

government involvement in a market economy

Government regulation is much needed since markets fails to satisfy the needs of the consumers and the government needs to intervene in order to keep the economy up to great standard like in SA, it is always the case for inflation to rise every day. It is also needed due to the market failures occur when the basic assumptions of efficient markets are not met in normal circumstances and this causes an in optimal allocation (Riley, 2006). Some examples of why government would intervene is because:

1) To correct a failed market

2) To achieve a more equitable distribution of income and wealth

3) To improve the performance of the economy

Government is needed to prevent the creation of monopolies. If a monopoly is a natural monopoly that doesn’t seem to make too much profit, it can be left alone, but if a monopoly has significant power and makes too much profit, government must restrict its market power. Otherwise, the monopoly could control prices and output with no restrictions at all. Also, sometimes government must set price ceilings or price floors in order to try to fix the problems of shortages and surpluses. By setting these price levels, the government helps bring the price and quality back to equilibrium position, where the quantity demanded=quantity supplied. (Riley, 2006)

Justify the rationale for the intervention of government in the market process in the U.S

Government agencies operate in different ways for different industries including the pharmaceutical industry. During the research process, there were two agencies that assist pharmaceutical firms which allow them to produce, register their copy writes, trademarks, and patents to insurance companies, doctors and the consumer. Regulatory agencies intervene because within the process of the discovery...