If the market system is capable of allocating scare resources efficiently, why then do we have market regulations in Australia?

1 Answer | Add Yours

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The great majority of market regulations are designed to prevent what economists call "market failures."  These are instances in which markets are not able to allocate resources efficiently for one reason or another.

For example, some markets suffer from externalities.  This is a particular issue in Australia because of the country's heavy use of coal, which is a serious source of pollution.  The true costs of this pollution tend not to be reflected in the economic transactions associated with the coal.  This is an externality that, in many people's minds, must be corrected by regulations like the proposed carbon tax.

There are other market failures such as monopolies and maldistribution of income.  Various regulations are meant to combat these problems as well.

Markets do generally allocate scarce resources more efficiently than any other system.  However, there are instances in which markets fail and government must step in.  This is why there are market regulations in Australia and in other countries.

We’ve answered 318,917 questions. We can answer yours, too.

Ask a question