In a mixed-market economy, what is the primary role of government regulation of business?

• A. To correct market failures and promote social welfare
• B. To set all prices and production levels directly
• C. To prevent any competition among firms
• D. To eliminate all private ownership of resources

Answer: (A)

Verified step by step guidance

1. Understand the concept of a mixed-market economy, which combines elements of both free markets and government intervention.
2. Recognize that in such economies, the government does not control all prices or production levels directly, nor does it eliminate private ownership or competition entirely.
3. Identify the main reason governments intervene: to address market failures, which occur when the free market does not allocate resources efficiently on its own.
4. Learn that market failures include issues like externalities, public goods, information asymmetries, and monopolies, which can harm social welfare if left unregulated.
5. Conclude that the primary role of government regulation in a mixed-market economy is to correct these market failures and promote social welfare, ensuring a more efficient and equitable economic outcome.