Chapter 1: Ten Principles of Economics- Principle 7: Governments Can Sometimes Improve Market Outcom
The theory of economics, governments can sometimes improve market outcomes, is a theory that is prevalent throughout the real-world. So one question that rises is why do we need a government, if the invisible hand is the best way to organize economic activity? One of the many reasons to have a government is to enforce property rights, making it possible for individuals to control scarce resources. The other big reason for government intervention is that the invisible hand fails to enhance efficiency and equity. Efficiency is how big the economic pie is, and equity is how the economic pie is distributed. Efficiency is trying to avoid market failure, where the market fails to produce an efficient allocation of resources. This can happen when there is an externality, which can make for positive or negative side effects, and because the invisible hand does not account for these side effects, the government interfering can sometimes be better. Likewise, market power, when a single group influences market prices, can also be prevented when there is government intervention. Equality deals with equity, and government intervention is important, since the invisible hand does not guarantee everyone has sufficient food, clothing, and healthcare. In short, a government the promotes equality, efficiency, and property rights is one that makes a government justifiable. We can see real life examples of efficiency and equality, like with salaries of professional sports players and Google's dominance in the market.
An example of equity can be seen in basketball, where the world's best basketball player earns more than the world's best chess player, simply because people would pay more for basketball games. Likewise, Google is a monopoly that is at the point where the government cannot intervene to prevent Google's monopolistic strength. Google's involvement with Android makes it so they are another competitor on the phone market, but in fact dominating the market, even though there are competitors like Microsoft and Apple. Some people that view this matter believe the possible restrictions on Google for monopolizing this industry will lead to less innovation and more economic inequality. As shown, a question of equality rises in this case, and the question of efficiency comes up when considering how humans will not get new technological upgrades, which is important since consumers want upgrades without even knowing about it. In short, principles of governments sometimes improving market outcomes can be seen in real life with Google or even in an every day salary question.