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Chapter 5: Q. 5.1 (page 100)

Explain how market failures such as externalities might justify economic functions of the government.

Short Answer

Expert verified

Yes.

Step by step solution

01

Step1. Given information 

Market failures bring in the need for government.

02

Step2. Explanation

Free competitive market has always been popular under the classical economics. But, the concept of laissez faire brings along market failure, where market is not able to reach to equilibrium on its own and is associated with concepts like externalities.
In such case, some external interference becomes necessary. This role of external interference is played by the economic functions performed by the government.

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