Test Case

In the real world economic conditions are not ideal. Most often resources are allocated inefficiently. This phenomenon is called market failure. When markets fail government and its policy can remedy the problem. If it happens government may increase economic efficiency by making right decisions. The economic theory of government explains why government exist, the economic roles of government, the economic choices they make and consequences of those choices . Nevertheless the principal question is why we need government. One reason we need government is that the invisible hand of the marketplace can work its magic only if the government enforces the rules and maintains the institutions that are key to a market economy . Although an increasing number of tasks seem to get assigned to the state each year, the traditional role of government in a market economy revolves around five jobs :

- Making and enforcing the laws

- Regulating business for example monopoly or oligopoly regulations

- Providing certain goods and services for example national defense

- Levying taxes to pay for these goods and services - fiscal policy and monetary policy

- Redistributing income

According to the other authors the economic objectives of the governments round the world in the market economy can be limited to four areas. First, to keep inflation under control. Second, to maintain low level of unemployment. Third, to achieve a high level of growth rate. Fourth, to maintain healthy balance of payments .

In this paper main areas in the market economy influenced by the government have been presented. The areas in which government choices influence companies performance have also been discussed in brief.