Government Intervention in Economic Welfare Essay

537 Words3 Pages
In pure market economy, price has been set by price mechanism where it coordinates the interaction between demand and supply resulting in a price changes. According to an economist Adam Smith (1776), in his book “The Wealth of Nations”, price mechanism is likened to be an “invisible hand” which will coordinates the decision made by consumers and suppliers while the economic system are working automatically. However, the theory of “invisible hand” is not absolute. The market economies requires institution such as government to implement policies and making decisions to maintain market and avoid market failure like monopoly and negative externalities. Therefore, government interventions are clearly crucial in the economy to maintain the…show more content…
Based on the Horticulture Director General Achmad Dimyati (2010) statement, Indonesia have a low level consumption of fruits and vegetables. Food and Agriculture Organization (2010) stated that consumption of fruit and vegetables are recommended to be average of 65 kilograms and 73 kilograms per capita per year. Where Indonesia consumptions are far bellow the recommended number. While due to shortage in their supply, in June 2010 prices of rice and chili has increased by 2.67% and 45.7% (BPS, 2010). This clearly shows that action have to be done by the government, not just to varying people’s diet and to improve nutrion, but to stabilize the prices of horticultural products as well. Where at the end, it will both benefits consumers and producers. Government now is working on a bill to improve fruit and vegetables supplies, in order to guarantee a continuous supply of horticulutural products. Government will try to improve market outcome by facilitating better capital access, financing and providing guarantees. This will prevent shortage of supply in market and will avoide prices to increase. Government will also have to come out with policy in order to achieve goal of equality. Dadi Sudiana, chairman of Chili Agrobusiness Association stated that “We always [profit less] from high priced staple foods such as red chili”. Where things get worsen when farmers are forced to split their profit with
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