Why was Friedrich von Hayek generally opposed to government intervention in an economy?

• A. He thought that government intervention is necessary to prevent monopolies.
• B. He believed that government intervention disrupts the price mechanism, leading to inefficient allocation of resources.
• C. He believed that government intervention ensures perfect information for all market participants.
• D. He argued that government intervention always leads to higher economic growth.

Answer: (B)

Verified step by step guidance

1. Understand the core idea behind Friedrich von Hayek's economic philosophy, which emphasizes the importance of the price mechanism in coordinating economic activity.
2. Recognize that Hayek argued the price system acts as a communication tool, conveying information about scarcity and preferences to all market participants without centralized control.
3. Analyze why government intervention might disrupt this price mechanism by distorting prices, which can lead to misallocation of resources because prices no longer reflect true supply and demand conditions.
4. Consider Hayek's view that no central authority can possess all the dispersed information that individuals in the market have, making government attempts to control the economy inefficient.
5. Conclude that Hayek opposed government intervention primarily because it interferes with the natural functioning of the price mechanism, resulting in less efficient outcomes rather than improving market performance.