Long-Term Investment Decisions
Government Regulations
Government regulation borders within the mandated needs in the economy to strike a balance between the market activities and social welfare of the people. The role of government in the market has been seen as one that is indispensable in an economy where this balance is needful. Contrary to this argument, it has also been observed that government involvement in the market economy can to a large extent lead to sub-optimal results. It is agreeable however, that government intervention guarantee the social welfare and production of public goods. These are aspects that are not possible to achieve through the market system (Smith, 2012).
The main reasons for government regulation are to provide public goods such as security and public health and lighting. The production of certain necessary goods in the economy cannot be achieved through the market system owing to lack of a proper measure for payment. Some public necessary goods have a feature of non-excludability. It is impossible to provide these goods excluding those who have not paid from using them. The government regulation mechanism comes in to collectively provide the goods and create a payment mechanism that market cannot sustain (Eidenmüller, 2011).
Redistribution of income in the economy is also a function achieved through government intervention. The national role of the government is to ensure welfare to all and, where there is an imbalance, the government comes in to create balance. Failure of the market mechanism to assure welfare calls upon the government to participate in guaranteeing this welfare. The government partakes in the balancing activity through taxation. Welfare of the people is assured by government’s effort to correct the failure of the market mechanism where negative externalities exist. The market mechanism is profit