Question

If the economy runs most efficiently when left on its own (Adam Smith's invisible hand), then why do we need government involvement? Do you think government should be so heavily involved in our economy?

Answer 1

The market does not always work efficiently. For example, there are many instances of market failure when the market fails to work efficiently and allocate resources efficiently. For example, in the case of negative externalities, the socially optimal amount is less than the market equilibrium amount. In this case, the government can intervene and impose taxes to correct market failure.

I don't think the government should have a heavy intervention in the economy. The government should intervene only in the case of market failures as most of the other times the market can allocate resources efficiently on its own.