Demand Production and Government Intervention
In general, the U.S. economy is characterized by "free enterprise," in which market forces determine supply, demand, price, and other economic variables. However, the government also plays a role in the economy, particularly in the real of regulation and taxation, which varies from sector to sector. The extent of such government intervention depends on various factors, such as whether the public interest is adequately served by the workings of the free market. In medical care and housing, for example, the government tends to play a significant role because they are considered necessities in a modern industrial society, which should be available to all. On the other hand, small, entrepreneurial businesses tend to be left alone by government, where success or failure is to be determined largely by market forces. Thus, in reality, the U.S. is a "mixed economy" in which the market predominates, subject to overall rules and sporadic intervention by government. This paper will discuss government's role in three distinct areas of the economy: pollution control, medical care, and antitrust law.
The field of pollution control provides a textbook example of government intervention in the marketplace. The reason for such government intervention is that pollution imposes external costs (i.e., those on a third party) on society that are not reflected in the profit-and-loss statements of corporations (Byrns, 1987). For example, when a manufacturing plant produces noxious fumes that spread throughout its vicinity via the wind, such foul air might impair the health of many people, imposing sizable medical costs on them. The mining industry provides another example; the extraction of minerals might scar the land near the mine or quarry, whose cost again is not directly accounted for in the free market. Agricultural examples arise in such instances as farmers using chemical pesticides that ...