1. Explain why government regulation is needed, citing the major reasons for government
involvement in a market economy.
When the United States was born, government was not intended to have a hand in business.
Businesses would be free to act in their own best interests without government involvement. The basic
role of government in business would be as a referee only. Government’s role would include:
Protecting business property: Government would provide fire, police, and military protection. It would
issue trademarks to businesses to protect their products, copyrights to artists and writers to protect
their creations, and patents to inventors to give them control of their inventions.
Enforcing business contracts: Contracts between businesses and customers would be legal and binding.
In other words, if a business had a contract with a customer to provide certain goods or services,
government would require the business to fulfill the contract and the customer to pay for the goods and
services received. If the customer refused to pay, s/he could be taken to court and forced to pay the bill.
• Settling business disagreements: Disagreements between businesses would be settled in the
government’s courts.
Setting and collecting taxes: Government would set and collect taxes on the products businesses sell.
These funds would be used to help pay the expenses of government. Government would also set and
collect tariffs—extra taxes on imported products. Tariffs promote the sale of American-made products
by making imports more expensive to purchase.
The role of government in business in the United States has changed and evolved since the country was
born. The government is involved in business to provide public goods; to protect public health and
welfare; to stabilize the economy; to protect businesses, consumers, investors, and competition; to
conserve the environment; to regulate working conditions; and to protect business property.
To protect business property, Government continues to provide physical protection for business
property and to issue trademarks, patents, and copyrights to protect products and ideas. Government
has also passed zoning laws to protect the value of business property. For example, sections of a city
may be zoned for certain kinds of businesses, such as office complexes or their products. Government
regulation has both positive and negative effects on business. On the positive side, businesses are
protected by government regulation from unfair competitive practices of other businesses. Regulation
of the use of resources gives all businesses fair access to those resources. Patents, trademarks, and
copyrights provide legal protection for a company’s products. Government regulation also provides
businesses with specific rules to follow in their dealings with consumers
2. Justify the rationale for the intervention of government in the market process in the U.S.
The existence of a problem does not in itself justify government intervention. Government itself does
not function perfectly, and any form of government intervention may impose costs. This means that

2. even when markets do not work effectively to deliver desirable goals, government must compare the
costs of failing to deliver those goals against the potential costs of the intervention.
There are four key stages to justifying the rationale for government intervention: The first is to identify
the set of policy goals to be achieved. This involves an assessment of the Government's strategic goals
and objectives, and the way in which they are translated to individual policy areas. Then we identify why
these goals may not be delivered without government activity. Economic theory demonstrates efficient
outcomes will be delivered only where markets are actually or potentially competitive. As soon as there
is an element of monopoly (on the side of the seller) or monopsony (on the side of the buyer) power
that can be exercised, a less efficient outcome will occur. This may arise because of the natural
characteristics of the market (e.g. very high costs of entry) or through strategic behavior by incumbents
(e.g. predatory pricing). The effective operation of markets relies on the fact that all the participants in
the market have complete and perfect information relevant to that market. When this information is
not available to all participants, this is described as asymmetry of information, and market failure can
arise. Information asymmetries lead to sub-optimal outcomes. For example, a buyer may not have full
information on the characteristics of a product or service he/she wishes to buy - this is known as
adverse selection
Markets work effectively to provide private goods and services, which are typically rival and excludable
in nature - i.e. each specific item or service can only once be sold or bought, and once purchased, can be
exclusively "enjoyed" by the purchaser. In contrast, public goods and services are non-rival and non-
excludable - if one person purchases the good or service, that does not stop others from purchasing it;
and there is generally no way to stop people from enjoying the good or service. True public goods and
services are comparatively rare, but the provision of national defense and of law and order are typically
used as illustrations
When we try to Identify what actions are available to government in order to deliver the desired
outcomes As well as providing a useful checklist for justifying government activity, the issues outlined
above can also be helpful in pointing towards the type of activity that government might want to
undertake - Stage Three of the process. Government intervention should typically be directed at tackling
the particular market failure that is occurring, or at delivering the specific social objective in question. A
wide range of interventions is available to government, and it will often be appropriate to consider
several options. Examples include tax incentives, grants, loans, and information campaigns. In trying to
consider whether the costs of government intervention are justified, we must identify the additional
benefits that would arise as a result of government intervention. The concept of additionally is
important - what should be measured is not the gross benefit, but the benefit net of what would have
happened without intervention, then the negative impacts of the Government intervention. These
negative impacts may include the direct costs of the intervention, but they may also include further
negative impacts arising as a result of "government failure" - i.e. it is possible that government will get
its intervention wrong, or that the intervention will have unintended consequences.

3. Only if the net benefit of intervention outweighs the costs of intervention is government action justified.
In practice, this stage of the process may form part of the economic appraisal of the options for
intervention, either through cost-benefit/cost-effectiveness analysis or through multi-criteria analysis.
3. Assuming that the merger faces some threats and If you're buying to save time, it makes no
sense to get tangled up in a long and costly process of integration. describe the additional complexities
that would arise under this new scenario of expansion via capital projects.
There's nothing wrong with buying a business in principle. Some of the perfectly acceptable purposes
are to acquire new turnover (and probably new customers): to obtain new facilities, from factories to
shops; to add new products; to purchase new technology; to enter new markets. All these laudable aims
could be achieved by organic means, but acquisition is quicker and easier - provided you obey the rules.
Any deal should be able to pass stringent test like; what are the chances of the aims not being achieved?
Are they acceptable? Can I live with any outcome? If the proposed purchase vaults the above hurdles,
how is the merger to be implemented and by whom? Do I have a plan? What framework will be
established for the combined venture? How will the buy be fitted in? How quickly can the buy be
integrated and the benefits start to be won? Will I have to wait too long for it to work?
The last question is clearly critical. If you're buying to save time, it makes no sense to get tangled up in a
long and costly process of integration. The risks involved in mergers are intensified if this question and
the other six do not get proper answers. When a company sells a business which proceeds to establish a
far higher capital value in only a year or two, that must mean that the vendor management either
under-managed the business, or sold it too cheaply, or most likely both.
The ease of acquisitions is thus highly misleading. Making the deal does not require management:
making the deal work is a straight exercise in managing, both in the initial integration and in the
subsequent joint development. The strategic argument must take second place to the management
imperatives. Your plan may be to transform the business by imaginative linkages of formerly separate
activities. The blend must still be made to appeal to the market. You can make one or two opportunistic
key deals to achieve great leaps forward. But this splendid ambition, too, depends on post-acquisition
practice