Government regulation borders within the mandated needs in the economy to strike a balance between the market activities and social welfare of the people. The role of government in the market has been seen as one that is indispensable in an economy where this balance is needful. Contrary to this argument, it has also been observed that government involvement in the market economy can to a large extent lead to sub-optimal results. It is agreeable however, that government intervention guarantee the social welfare and production of public goods. These are aspects that are not possible to achieve through the market system (Smith, 2012).
The main reasons for government regulation …show more content…
Market economy is touted for its ability to bring in a competition where competition leads to low prices. Without government regulation, price stability is not achievable since, the increasing competition will lead to consistent low prices and thus price instability. In a case where regulations in the market are absent, lower quality products will be introduced to reflect the low prices the market offers (Eidenmüller, 2011).
Complexities of Expansion via Capital Projects
The possible challenge for the need to raise capital is the source of capital. In this case, there is likely to emerge a tussle between the company managers and shareholders. The managers’ easiest measure to raising capital would be to focus on the shareholders reserves. The shareholders will consider this as a compromise on their worth in business. Raising capital in a corporation is not an easy measure to undertake. There are a number of items that need to be evaluated. One is the cost of the capital, secondly the ease that the capital can be obtained and thirdly the expected return on capital.
Business managers will only settle to outside funding when they have a possible guarantee that the cost of capital will be met through the venture. This is without necessarily altering the company’s profitability. Considerations for the source of capital require business shareholder to retain