The role of government in the regulation of the economy

THE ROLE OF GOVERNMENT IN THE REGULATION OF THE ECONOMY

Prepared by:Zarifov Samariddin

Over the course of history some governments have attempted to exercise complete control over economic affairs in the interest of accomplishing social or political goals, and other governments have attempted to stay completely out of economic affairs in the belief that economies work best when they are unregulated. Today the roles that most governments play in their national economies fall somewhere between these two extremes. Most of the world’s largest economies today are capitalist; that is, they are systems allowing individuals and businesses to own property and compete with one another in the pursuit of profits and economic well-being. In a capitalist economy producers and consumers make countless individual decisions that together add up to the bigger economic picture. No central authority dictates what goods and services companies produce or sets prices for those goods and services. Instead, the competing forces of sellers (supply) and buyers (demand) result in prices that ultimately dictate what will be produced, how it will be produced and distributed, and who will enjoy the fruits of this production and distribution.

Regulation is generally defined as legislation imposed by a government on individuals and private sector firms in order to regulate and modify economic behaviors. Conflict can occur between public services and commercial procedures (e.g. maximizing profit), the interests of the people using these services (see market failure), and also the interests of those not directly involved in transactions (externalities). Most governments, therefore, have some form of control or regulation to manage these possible conflicts. The ideal goal of economic regulation is to ensure the delivery of a safe and appropriate service, while not discouraging the effective functioning and development of businesses. For example, in most countries, regulation controls the sale and consumption of alcohol and prescription drugs, as well as the food business, provision of personal or residential care, public transport, construction, film and TV, etc. Monopolies, especially those that are difficult to abolish (natural monopoly), are often regulated. The financial sector is also highly regulated.