Is government involvement in markets inherently inefficient?

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thanatassa eNotes educator| Certified Educator

Certain economists believe that the free market is the most efficient possible economic system. This belief. however, posits the existence of a pure form of free market capitalism which has never actually existed. In the real world, their is never absolutely unconstrained exchange. Also, the efficiency of free markets is based on a presumption that humans act as pure rational agents, untempered by humane impulses. For example, free market theory would not account for ethical consumers who might want not to buy the least expensive version of a product if that means supporting sweat shops, child labor, or deforestation. The other major challenge to free market theory has been the rise of the Chinese model of state capitalism, which seems quite economically efficient.