Question

What is the role of Government in the market place?

Describe supply and demand; and give their lucidly definitions with Examples

Answer 1

1) A market economy refers to an economic system in which the decisions about the investment, production and distribution are taken by the forces of demand and supply. The primary functions of government in a market economy are as follows:

1. Efficiency: The government must attempt to correct market failures such as excessive pollution and monopoly to ensure efficient function­ing of the economic system. Externalities (or social costs) arise when firms or people impose benefits or costs on others outside the marketplace

2. Equity: Government programmes targets for promoting the equity use taxes and spending for the redistribution of income toward particular groups

3. Infrastructure: The government should provide an inte­grated infrastructure to directly or indirectly improve the output levels or effi­ciency in production.

4. Economic Growth or Stability: The governments rely upon taxes, monetary regulation and expenditures to enhance the macroeconomic stability and growth to reduce inflation and unemployment while encouraging eco­nomic growth

2) Demand and supply is one of the most vital concepts in economics. Demand represents the ability and desire of consumers to purchase a good at a range of different prices. Supply represents the amount of a good which the producers are willing to offer for sale at a different range of prices. The price at which the demand and supply curves intersect is termed to be an equilibrium at which all of the good that is offered will be purchased. Example:

When supply of a product increases, the price of a product falls and demand for the product can increase as it costs loss.

There is a drought and very few bananas are available in the market. More people desires the bananas than it's availability. The price of bananas increases dramatically.