Question

Which of the following is a role of the government in the economy that a proponent of free market capitalism would be most likely to support?

(a) Taxing a “sin good” such as alcohol

(b) Enforcing contracts

(c) Making interest-free student loans

(d) Mandating the purchase of auto insurance

Answer 1

Let’s get the brief explanation of terminology of free market capitalism so before let’s get the meaning of Capitalism first, Capitalism is a system that is characterized economy by private property, freedom of economic exchange, competitive markets and limited government intervention. While the government doesn't set price in a free market, the market used to decide through the law of supply and demand.

A free enterprise system is largely self-regulating. Therefore, government plays a limited, but important, role, allowing individuals to make most of the economic decisions. Specifically, government has two roles: rule maker and umpire.

now we will understand each of the option starting from (a) where the taxes on the "Sin good" such as alcohol has been talked about, it is true to the extent of taxing on the prohibited goods where such goods are harmful in nature and the contribution to the society is negative, such goods should be taxed high as the government should keep such goods in the high tax bracket where the government income is also high and the people those are capable of buying it will only buy the goods though the goods are available in the free market.

Now we will see Second Option (b). Enforcing Contracts this means that government should help in enforcing any contracts in the free market capitalism, however if we check then the government plays an important role in developing all the rules and regulations for the controliing of the free market so government is pre exist in any of the contract takes place in the market, where the government do provide the approval and the permission to all the feasible transactions in the economy.

So the thir option talked about the interest free student loans so in the free market capitalism there is no such barriers on getting loan approvals at the subsidized rate which are used to be cheaper as compared to the other loan funds, and regarding the free interest, its the government decision on how to make it possible and to the what class of society and to the target families which are actually needed the student loans is matter in such policy creation of interest free student loan.

Last option talked about the mandating purchase of auto insurance, so in this option the restriction is reflecting though the decision is for the afety of the citizens, however such mendatory option will not work in freee market capitalism, and this can lead into the reduction of overall purchase capacity of the auto, and the direct impact will be on the auto industry for the mendatory option of insurance, so rather prefering for the mendatory option governement should make the awarenesss for the innsurance and for the safety of the individuals and of their own family and the benefits of protecting them with family.

So the option one is most supporting in regards to the explanation which we have for all the options and the feasbility of all the alternatives in the free market capiitalism.