In a mixed-market economy, why does the government regulate businesses?

• A. To eliminate all private ownership of resources
• B. To prevent any form of competition in the market
• C. To ensure that only public enterprises operate
• D. To correct market failures and promote social welfare

Answer: (D)

Verified step by step guidance

1. Understand the concept of a mixed-market economy, which combines elements of both private enterprise and government intervention.
2. Recognize that in such economies, the government does not eliminate private ownership or competition but instead regulates to address issues that the market alone may not solve efficiently.
3. Identify what market failures are: situations where the free market leads to inefficient outcomes, such as externalities, public goods, or information asymmetries.
4. Explain that government regulation aims to correct these market failures by setting rules, standards, or providing services to promote social welfare and protect consumers, workers, and the environment.
5. Conclude that the primary reason for government regulation in a mixed-market economy is to correct market failures and promote social welfare, rather than eliminating private ownership or competition.