The role of government in a free market economy Essay

The role of government in a free market economy - Essay Example The transaction between the buyer and seller fosters cohesion and a free market. Competitive and free economies allow sellers to meet customers’ demands according to their likings and distribute inputs among manufacturers. Division of labor is important in an organization because it facilitates a balance in the economy to reduce the cost of production (Mathur par 2). The government plays a critical role in a free economy by proving a legal framework of enforcing contracts and resolving contractual disputes. The government also protects individual rights to property and establishes a sound economic environment by proving a stable trading currency. The government also provides public goods such as schools, hospitals and street lighting that would be costly for the private sector to provide in a market economy. The government also corrects the market failures such as economic downturns and external costs like air pollution. The government maintains the competition in the free mar ket economy through regulating the activities of monopolies and stabilizes the national economy by regulating the unemployment level, the inflation rate and enhancing the rate of economic growth. The government taxation policies also help in redistributing income in the economy by taxing the rich heavily and using the taxes to provide social services to the low income citizens. A free market elevates the overall economy of a country, but there are unfortunate situations when a free market has dysfunctions. Economists term these circumstances as market failure (Mathur par 3). Market failure occurs due to monopoly power, environmental pollution by manufacturers, common property resources, misinformation and risky business ventures. Market failure prompts the government to intervene by enabling the functioning and fluidity of these small markets. The role of government in free markets is to design, enact and finally implement reasonable market policies and laws that ensure customers an d sellers’ rights to buy, sell and own property under positive rates and trading environment. Government requires the cooperation of all free markets to improve the living standards of citizens. Private sectors that continue to improve the overall economy are fully supported by the government and their clients. The government develops institutional and democratic economic structures that guarantee strong and stable economic, political, social and environmental aspects of the country. Regulation of monopolies Monopoly power implies that a single of few manufacturers and sellers control the whole market. The entrepreneurs that control the whole market are referred to as monopolists. They restrict the production of goods and services and charge high rates. Monopolists have the ultimate control of the market thus facilitating the foreclosure of small businesses and gaining the competitive advantage. The government intervenes by creating antitrust laws that split or cease the mono polistic practices (Mathur par 4). Regulating these monopolies promotes the interest of other small-scale business communities and the public. Gas and electric services in the U.S were previously controlled by private sectors. Electricity and gas are essential in running businesses, travelling, cooking, building and construction, medical practices, water and