2 Answers | Add Yours
According to economic theory, it could be a good idea for a government to produce goods and services in cases of market failure. In particular, it is a good idea for a government to produce public goods.
Public goods are things that the private sector will not have any incentive to produce. A public good is one that can be used by all people without reducing its availability for anyone. An example of this would be national security. If I “consume” national security, if my country is secure from invasion, it does not reduce the national security of my neighbor. A public good is also one that cannot be denied to those who fail to pay for it. Again using national security as an example, if the military protects my country from invasion, it cannot deny me protection because I have not paid for that protection. It cannot protect the entire country except for the place that I happen to be.
Because of these factors, private firms cannot make money producing public goods. Therefore, they have no incentive to produce them. This means that, if we want such goods, governments must step in and produce them.
Having the Government provide for various goods and services, as mentioned above, would include mainly public goods. Businesses and firms are not able to succeed by providing such goods because it will cost them too much money to the point where it would not be worth it. Furthermore, if a company did provide a public good, it would be abused by its ease of access and lack of restrictions.
This is why it would be very desirable for the Government to provide various public goods. Take for example the police in your city. The Government raises taxes to pay its employees, fund projects, and help the city. Those police officers who are paid by the Government, provide the citizens of their city with a service to protect and serve. The service that they are providing is a public good that can be credited to the Government.
Let's say however, if a police station were to work independently from the Government, and essentially work as a private firm. They would not be able to succeed or provide security to the city and its citizens because there would be no funding. Police don't make money just by protecting from crimes. They are funded by salary. Since the police station would now have no one to rely on for compensation and wages, they would not be able to pay the employees.
This is why Government providing various goods and services is often essential. Without them doing so, public goods would be very limited and the city would be in a much worse position. Having the Government there as a backbone, and to stimulate the economy when need be, is what our society relies on and trusts in.
We’ve answered 287,306 questions. We can answer yours, too.Ask a question