Introduction
A market economy denotes a system where the demand and supply of items are vital for the welfare of customers. In daily occurrences, one can experience the impact of the market economy through the changes in the prices of goods and services (Friedman, 2017). For instance, when a person wants to purchase bananas, their prices are highly influenced by the number of people in need of them and sellers in the market.
Main body
People, private organizations, and the government have a crucial role in a market economy (Heasman & Lang, 2015). This signifies that the cost of bananas might be controlled by some government policies although it is mostly reliant on the behavior of private companies and customers. In this aspect, the government has a vital task of consumer protection since if it fails to undertake its role effectively, risky occurrences may befall customers or sellers.
The significance of the government’s function in a market economy may be understood by looking at hypothetical businesses, X and Y, which grow and sell bananas. To achieve a competitive advantage in the market, X could employ a method of growing bananas faster and efficiently by use of chemicals that are harmful for human consumption. To compete effectively with X, Y could decide to use the same process of growing bananas more quickly while well knowing its harmful effects. If there were no government intervention, the two companies would expose their customers to incredible health risks.
Conclusion
Though the process they have decided to use is economically efficient, the government has to perform its role of testing whether the items being sold in the market have negative effects on people’s health and prohibit their sale (Koopman, Mitchell, & Thierer, 2014). In this manner, companies X and Y are forced to follow the rules set by the government while seeking to realize a competitive benefit.
References
Friedman, M. (2017). Price theory. Abingdon, United Kingdom: Routledge.
Heasman, M., & Lang, T. (2015). Food wars: The global battle for mouths, minds and markets (2nd ed.). Abingdon, United Kingdom: Routledge.
Koopman, C., Mitchell, M., & Thierer, A. (2014). The sharing economy and consumer protection regulation: The case for policy change. The Journal of Business, Entrepreneurship & the Law, 8(2), 530-545. Web.