Long-Term Investment Decisions

1267 Words Jun 8th, 2013 6 Pages
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
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The government regulation will regulate the market economy to reduce the negative externalities (Aghion, Algan, Cahuc, & Shleifer, 2010).
Justification for Government Intervention
Consumer protection is only possible through government intervention in the market economy. Corporations seeking to maximize profits may end up exploiting consumers in the absence of the government regulations. In this perspective, the government controls the production activities through standard setting and assessment. The standards control aspect is not achievable through the market mechanism of competition since there are chances for collusion among the producers (Aghion et al., 2010).
Mergers and monopoly through the market economy are highly possible creating opportunities for consumer exploitation through substandard goods and high prices. The government’s role in this case is to oversee the mergers and control the market to obscure monopoly creations. The essence of market economy is to achieve optimal capacity in production an aspect that is likely to miss out where a monopoly exists (Eidenmüller, 2011). The intention of government regulation is to oversee the mergers and safeguard the interests of consumers.
Government intervention in the market is necessary as long as there is a growing need among the corporation of today to maximize profits at whatever cost. The consumer needs