Since the day when the market came into being, it has maintained routine operations and developed day by day with its inherent mechanism. Every participant in the free market makes transactions with others for the sake of his own interests. Owing to this everlasting principle, slowly, market naturally develops various market regulatory mechanisms. Following these natural formed mechanisms, the market performs free and well, as if there is an invisible hand[ ] to dominate and control market participants, guide participants to perform according to the law of the market, make the allocation of scarce resource to be most reasonable, drives consumers and producers make rational decisions and act to pursue wealth.
However, in some cases, free market economy results in blindness, uncertainties and other issues brought failures to achieve market efficiency and therefore advocate active policy responses by the public sector. That is the potential for government to provide macro-controls. But how much should the government intervene with the market and what is the exact proper role of government in the market economy? To explore this issue precisely, I developed this paper into five main sections:
First I introduce the main economy systems and briefly explain the government position in every kind of economy system.
The second part is explicitly dedicated what and who are the government which I believe will help to better understand the role of government in market economy.
In the third part, I briefly talk about the key reasons for governments participation in market economy. More detailed causes for government intervene will be discussed later along with the interpretation of each role of government.
Fourth, in the most vital part, I elaborate perceptions about the role of government. Including the definition of every role and acts that government takes in accordance with different roles.
The paper concludes with the briefly mention of public failure and the emphasis on the relation between government intervention and free market force.
2. Three main economy systems.三大经济系统
Market economy relies on market force like supply and demand law; it allocates resources through decentralized decisions of many firms and households as they interact in market for goods and services [ ]. Completely, there is no governmental intervention.
On the contrary, Planned economy is an economic system in which the state or government manage the economy [ ]. In this system, the central government plans all the economic development, so it got that name. China used to be a country adopted planned economy system during the early years, but before long, China abandoned planned economy system and developed into the system that combines the planned economy and the market economy, after years of development, it is proved that the mixed economy system is best for China to flourish
So whats the mixed economy? It is a combination of free market economy with government intervention, in mixed economic system, there are mixed economic activities, some of them are undertaken by private firms, others are undertaken by the government [ ]. In fact, most country of the world, no matter it belongs to socialism country or capitalism country, has the mixed economic system, even though some of them only use government to fix market failure. But the degree of government intervention is far from the same among different countries; actually, there is no universal agreement on the best proportion for government in mixed market in terms of the well-being of the whole nation.
Its obvious that mixed economy is in the dominant place. In essential, market economy interact with gover