Chap24

• The role of Government in a mixed economy

  • Ensure that business activity is conducted in a fair way
  • Deal with externalities (protect environment)
  • Ensure healthy competition (existence of small firms)
  • Protect consumers from exploitation
  • Ensure workers are paid at a fair wage
  • Provide a legal system and penalise abusers
  • Ensure there is a balance
• Too much government intervention

  Discourages enterprise and reduces foreign investments, reduces national income, employment, tax revenue and consumer choice
• Too little government intervention


  Some stakeholders' interests neglected
• Government intervention to deal with externalities

  Positive: subsidies, Negative: fines, taxes, permits
• Promoting Competition


  1. Encourage growth of small firms

  2. Lower (legal) barriers to entry

  3. Introduce anti-competitive legislation/prevent anti-competitive practices
• Limit Monopoly Power


  Carefully monitor monopolies so consumers are not exploited, issue fines if quality standards not met, appoint bodies to oversee monopolies
• Protect Consumer Interests


  1. Ensure consumers buy good quality products at fair prices, with good customer service and accurate information

  2. Prevent firms from increasing prices, using price fixing techniques, restricting consumer choice, raising barriers to entry, spending huge amounts on advertising
• Protect Consumer Interests (continued)

  Legislation exists to protect consumers from prices, false information, trading + age restrictions, payment methods, consumer rights, promotion of products, quality and safety
• Control Mergers and Takeovers

  Investigate mergers/takeovers and block them if certain conditions are not met to prevent restriction of competition
• Minimum Wage


  Imposed by governments to raise low incomes of low paid workers
• Minimum wage is imposed

  Decreases demand for labour, increases supply of labour, leading to unemployment
• Benefits of Minimum Wages

  • Benefit disadvantaged workers, reduce inequality and increase fairness, reduce welfare claims and increase tax revenue, motivate employees and boost productivity
• Some argue minimum wages do not reduce employment levels
• However, strong economic growth during the periods of minimum wage introduction could have increased labour demand anyway