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Role of Government in the Economy - Coggle Diagram
Role of Government in the Economy
Promoting a Stable Market
The Government can regulate the economy to make it more stable and predictable. It can do this by encouraging competition and preventing monopoly. This helps keep prices stable for consumers
What is a Monopoly?
A monopoly is when a company or group has complete control over the supply of a product or a service
Why are monopolies bad?
Monopolies cut out competition and if a company has a monopoly they can set the price at what they want. There is also less incentive to create a better quality product.
Example of a Monopoly and Government Intervention
In the 1990s, the computer company Microsoft owned 90% of the market for personal computers. They used this power over the market to persuade computer manufacturers to use their operating system and internet browser exclusively. The U.S government sued them and ordered them to break up their company to allow access to the market by other companies.
Ensuring the Safety of the consumer
Governments oversee the production of some goods and services to ensure they are safe for consumers to use. Sometimes they make a company add certain labels to their product to warn consumers. Laws are put in place to ensure producers follow and meet safety standards.
Role of Health Canada
Health Canada sets safety regulations for companies that produce goods for human consumption (food). They require companies to clearly display the nutritional value of a food on its packaging. For example, they require cigarette companies to clearly warn people for the potential harms.
Role of CSA
The Canadian Standards Association ensures that products meet industry standards for safety.
Product Recalls
If a product passes all safety tests it is usually trusted in the market, however, the government agencies responsible for consumer safety cannot oversee all production. Sometimes, products slip through and enter the market although they are not safe. If they do, the government can force the company to issue a recall on that product.
A recall allows the consumer to have their purchased good repaired for free or get a refund.
Environmental Protection
Why is it important?
Some companies care more about profit way more than environmental sustainability, and if left to their own devices, they would pollute freely in the name of maximising profit. In order for that to not happen government agencies ensure that companies meet environmental protection standards.
Example of environmental regulation on businesses
Forestry companies. Forestry companies usually harvest trees from public or 'crown' land. After they clear trees of the land they must pay to have the land re-planted with trees to ensure the sustainability of our forests.
Labour Laws
In Canada and in every province there are laws that protect worker and employer rights. Governments enforce occupational health and safety standards, They conduct safety inspections and investigate workplace accidents and injuries
Crown Corporations
Crown corporations are wholly owned federal or provincial organizations that are structured like private or independent businesses. Crown Corporations are usually created to fulfil a need that would not make any profit for a private company. It would take decades for a private company to earn a profit after the initial investment of building the required infrastructure.
Some examples of Crown Corps are Air Canada, Petro Canada and Canadian National Railway
Prevent Price Fixing
Price fixing occurs when several similar companies agree to inflate the price of their goods or services to increase profits. Price fixing goes against the law of supply and demand by in a sense creating a monopoly. An example of this would be if shell, esso, and petro-canada agreed to increase their fuel prices by the same amount to make more profit.
Competition Act
Price fixing prevention is enforced under the Competition Act which serves to promote competition and ensure the best prices for consumers.
Drawbacks of government involvement in the economy
Corruption in government
Governments wield a lot of power and are privy to information outside of the public sphere. It is against the law for government officials to use private information to gain profit (insider-trading). Recently a group of US senators sold a significant part of their stock portfolio after a private briefing about the damage COVID-19 would do to the stock market.
Waste and inefficiencies
Government organizations sometimes have a reputation for being inefficient and wasteful. Government employees are often well paid and have good job security. This can lead some to become lazy and inefficient at their job. That is our tax dollars paying their bloated salary. Private companies run on profit so finding efficiencies makes you more competitive and profitable.
That is why some people think all crown corporations should be privatized.