Role of government in an economy

The government as a producer of goods and services and as an employer

From the previous lessons, we have learned that Economics is about how human beings try to satisfy their wants. People always try to maximise their satisfaction, while businesses try to make profit. While this is the case, there are reasons why the government needs to act in the market.
1. Private firms usually fail to provide public goods. One could not be exempted from using those goods even if he/she does not pay for it. Private firms will not provide such goods. Example:- street lights, light houses, police service, fire fighting services, military.
2. Some vital services may not be adequately provided if it is provided only by private sector, or those services may be too overly priced. Therefore the government may provide those goods to make it affordable for everyone.
3. A monopoly in the private sector may exploit the consumers. Therefore the government may decide to provide that particular good or service.

For the above reasons, the government itself can act as a producer of goods and services by setting up public corporations. When the government produces goods and services, it also has to employ factors of production, thereby becoming an employer.

  1. Aim of government Policies
  2. Fiscal and monetary policy
  3. Supply-side policies
  4. Possible conflicts between government aims
  5. Types of taxes
  6. The government’s influence on private producers

Next Unit: Economic Indicators

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