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In a market economy, the majority of a nation's land, factories, and other economic resources are privately owned by businesses or individuals. Even though the government has little or no direct involvement, it still has an influence in improving the market's economy by creating antitrust laws, providing a stable fiscal and monetary environment, and preserving political stability and property rights.
One role the government has in the economy is to enforce antitrust laws. Antitrust laws are enforced in order to encourage the development of industries with as many competitors as possible. In other words, antitrust laws restrict one company from creating a monopoly; to keep a company from controlling the supply of a product and ultimately the price. Therefore, if there is more competition in a single industry, prices on those products will be lower in order to compete for and supply consumer demand.
Recently, Microsoft was brought to court because the U.S. Government believed the corporation had created a monopoly in its industry. The case was overthrown due to lack of evidence. The U.S. Government also has the Federal Trade Commission whom role it is to make sure that the nation's market functions efficiently and in a competitive manner. The FTC will also deal with cases outside the U.S. if they believe the market will be affected.
The government also gets involved to help preserve individual property rights. These regulations help to encourage people and companies to take risks in investing, starting new businesses, and even developing new inventions and ideas. One example of how the government helps to preserve property rights is when it helped artists to protect their music by shutting down Napster; a peer to peer file sharing program where people could illegally swap music over the internet. The government eliminated the free sharing and established a fee to download songs. Slowly the courts are diminishing these peer to peer programs and giving artists a reassurance that their published works are protected by law.
Another government role is to provide a stable fiscal and monetary environment. The government provides a stable currency, which is accepted globally, that eliminates the need for inefficient systems of barter, and to maintain the value of that currency through policies that increase the overall level of prices of goods and services. Another way to keep things stable is for the FED to increase the money supply which in turn lowers the interest rate. This brings on an overall increase in consumption. Fiscal policies introduce government spending and tax programs to stimulate the economy in times of high unemployment and low inflation or to slow it down when there's high inflation and low unemployment. If necessary the government will spend more or tax less.
Governments that maintain a politically stable environment enjoy a high degree of economic stability. The market tends to be stronger in these countries because there exists no uncertainty about unforeseeable events that would cause a major economic crisis.
Therefore, even though the government is kept at a distance from actual business activities it has ways of intervening by enforcing laws and regulations to keep businesses honest and the money flowing .
Http//usinfo.state.gov/products/pubs/market/mktec8.htm
International Business nd ed. Wild, Wild, and Han; New Jersey, 00
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