What economic argument can be made to say that it is necessary to have Government laws in order to protect employees and customers of bus companies such as Bimisi Buses?Governments often pass laws...

What economic argument can be made to say that it is necessary to have Government laws in order to protect employees and customers of bus companies such as Bimisi Buses?

Governments often pass laws to protect employees and customers.

Bimisi Buses is a private limited company. It has two main types of customers:

*Businesses hire the buses to transport their workers to and from work in the morning and evening

*Schools hire the buses to transport their students to and from school everyday.

The problem for Bimisi is that the buses are very busy in the morning and evening but are not used for the rest of the day. His drivers sit around and the buses stay in the bus station.

Asked on by owhemgee

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

In general, economic theory holds that the government should not make laws to “protect” employees and customers of such business as Bimisi.  If Bimisi’s service is valuable enough to the companies and the schools, they will pay Bimisi enough to allow the company to stay in business.  If Bimisi’s service is not worth the money, the companies and schools (or their workers and students) will make other arrangements.

However, economic theory also says that the government can step in in certain cases.  One such case is when there are externalities.  In this case, we can say that Bimisi’s service provides positive externalities for society and society should therefore pay to ensure that these externalities continue to be provided.  Positive externalities exist when an economic transaction benefits people who are not directly involved in it.  In this case, it would mean that people other than the schools, firms, students, and employees gain benefits from Bimisi’s services. 

We can say that all of society gains from Bimisi’s services.  Those services allow schools to function well, educating young people who will help bring about economic growth in the future.  Those services allow firms to function, creating things like tax revenues that benefit all of society.

Since Bimisi’s services benefit all of society, the government should (we can argue) make laws to ensure that they will be provided.  This should take the form of subsidies to Bimisi’s to help pay for the benefits that society is receiving.

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