Government Intervention Lies Conviction Of The Existance Of Market Failure

1177 Words Mar 12th, 2015 5 Pages
At the core of the theory justifying the need for government intervention lies conviction of the existance of market failure, defects that make certain market situation, which by its nature is to aim to maximise satisfaction / utility and optimally allocate resources, it stops - in the sense of optimum Pareto- function properly (Francis M. Bator, 1958) . In other words, the market reduces the utility and waste resources. It must therefore step a mediator- usually government or legislative body- which will correct existing errors, improving the existing condition of things, that is, increasing the usability and improving allocation. Interventionism is often called the third way, mixed economy, social market economy or the welfare state and the main purpose of it is to achieve compromise between capitalism, which is identified with the market econmy, and socialist system where the predominant form is centrally planed economy. The term market failure, which for he first time appeared in 1958 (Francis M. Bator, 1958), defines situation where the market does not perform in a rational ways its basic functions; motivational and allocative. According to F.M.Bator, the market fails when people are fully dedicated to their private interests what in fact leads to inefficiency. F.M. Bator argues that businessmen`s desire for a ``quiet life`` is oposed to the fact that ` they have to do with the efficiency of ``real life`` market institutions operated by ``real life`` people in a…
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